Information on Community Property Law

If you remember anything I am about to write, please let it be this: Do not believe legal advice from collection agents. The legal advice from collection agents is usually incomplete or wrong, and is always self-serving.

Deceased Spouse's Debt

Some people assume a deceased person's (decedent's) debt is forgiven or possibly written off by creditors. The law does not work that way, with the exception of federal student loans. However, spouses or other relatives are not responsible for the decedent's debt automatically, either. Many collection agents take advantage of a debtor's grief and ignorance of the law to imply the family must pay the decedent's debt, but that may not be the case.

When a person dies with a will, the will controls the financial affairs of the decedent's assets and liabilities, which is called the "estate." A will distributes assets, not debts. However, before any assets can be distributed to the heirs, all known debts must be paid by the executor. Therefore, the executor will sell assets in the estate to pay for any debts that remain. Only after the debts are paid will the remaining assets be distributed among the beneficiaries of the will.

If a person dies without a will, this is known as "dying intestate" in lawyer-speak. In this situation, the court appoints an administrator to handle the distribution of the decedent's assets according to the laws of the state. As with dying with a will, assets are distributed after debts are paid.

Here is a key point: If the estate is insolvent the creditor has no legal right to collect the debt from family members, children, or friends. There is no feudal debt bondage that ensnares an entire family, at least not in the US. In most states, the creditor cannot collect from the spouse either. However, in community property states, the question becomes more complicated.

Community property states include:

• Alaska
• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Deceased Spouse's Debt in Community Property States

Generally speaking, in community property states, debt incurred by a spouse for the benefit of the family is considered a "community" debt, and therefore the spouse is responsible for repaying that debt.

The basic principal behind community property schemes is that a married couple is treated as a “marital community,” which operates as a single entity for many legal purposes. For example, if a home is purchased by the couple as the family residence, it may be considered to be owned by the marital community, even if only one spouse’s name is listed on the deed to the property. Also, if a debt is incurred by one spouse, such as a credit card opened by only the husband, and the charges benefit the community, such as for the purchase of items for the home, that debt may be treated as being owed by the marital community, not just by one spouse. Although spouses are allowed to own individual assets and incur individual debts, many community property states presume that any property purchased or any debts incurred during the marriage were for the benefit of the community and thus are community property. California makes that presumption, for example.

Recommendation

You mentioned you reside in a community property state. You may be liable for your deceased spouse’s debts. The degree of your liability is dependent on the type of debt, for what purpose the debt was incurred, and whether the purchases that resulted in the debt benefited the marital community.

Consult with a lawyer in your state who has experience in family law to determine how your state's laws apply to financial situation. An attorney should be able to review your obligations and clearly explain your liability for any debts incurred by your spouse. 

Although you may be legally liable for all or a portion of your late spouse’s debts, in my experience, it is somewhat unusual for a debt collector to pursue a spouse who was not listed as an account holder on the debt. The creditors may ask you to pay these debts voluntarily (from your question, it sounds like this has already happened), but in order to force you to pay the debt, the creditor would usually need to file a lawsuit against you and prove in court that the debt in question is a community obligation, which became your personal obligation upon your spouse’s death. Such legal proceedings are an expensive undertaking for a creditor, and even if the creditor wins a judgment, there is no guarantee that you will be able to pay it. In addition, many creditors do not want to risk the public relations issues which could result from suing consumers whose spouses recently passed away. As I mentioned before, I would encourage you to discuss this issue with an attorney to discuss the possible consequences of allowing this debt to go unpaid.

As for your joint bank account, in many states, spouses own property jointly with the right to survivorship. This means if one spouse dies, the other spouse automatically becomes the sole owner without the property or asset going through probate or being included in the late spouse’s estate. I would be very surprised if the joint bank account you and your late spouse held would be considered part of the estate. However, state laws vary on survivorship issues, so I again encourage you to consult with an attorney about this issue to make sure that you are the now the sole owner of the account, and that you do not need to include the funds from your joint account in your late spouse’s estate. 

I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

Bills.com