Community Property Debt
- Credit Card companies can sue you if you default on payments.
- Be proactive on dealing with bad debt.
- Community property laws are state specific.
In a community property state, do both spouses share liability for the pre-marital debt of one spouse?
I had a credit card before I met my wife, Feb. 2000, Met my wife in Nov of 2001 and married in July 02, we live in the state of Louisiana. Can the credit card company sue her for the money? I know Louisiana is a community property state but I thought what debt I occurred before we were married was my debt and not hers?
I need to state two important caveats about my following answer:
- Community property is a concept that each state bends and melds with statutes and court law. I can speak of community property in general and California's community property law in particular, but not the other states.
- You mentioned Lousiana. Louisiana law is unique in the US because its roots are not in English common law like all of the other jurisdictions, but in Napoleonic code. My exposure to Louisiana law is limited to its statutes of limitations, and not its family law. See the Bills.com page Louisiana Community Property to learn more about your state's laws.
|Community Property States|
In general, assets and obligations of one partner acquired during the marriage become "community" assets or obligations. This can mean that one spouse can be held liable for the debts of the other spouse even if his or her name was not on the account that resulted in the debt. The same is true for pre-marital debt — pre-marital debt owed by a spouse becomes the liability of the community upon marriage.
In some community property states, one spouse has the ability to create "non-community" assets and obligations. Generally speaking, for a debt to be considered community property, the debt must have been incurred to benefit the community. For example, if the debt were incurred to purchase items for the marital home, it would likely be considered community debt. However, if the debt were incurred to purchase a boat which one spouse never used and which was kept separate from other community assets, the debt may not be considered community debt, and the non-debtor spouse may therefore not be liable. However, this rule is not universal among community property states.
Spousal Liability for Community Property Debt
Let us assume that a creditor files a lawsuit against your spouse for a breach of contract relating to the default on a credit card balance. As mentioned, in most community property states the spouse of the defendant has liability under community property laws. The creditor has the option of file a lawsuit against the defendant's spouse. If the spouse of the debtor is sued, and the state allows spouses to classify some debts as non-community and this particular debt qualifies, then the non-debtor spouse could challenge their liability in court and may be able to avoid a judgment.
Regarding credit card debt, in most community property states, I have not seen creditors file suit against the spouses of credit card holders as a matter of course. I do not understand why this is so, but I imagine it is because credit card issuers may believe they face a more difficult case by filing suit against both spouses. Therefore, if you live in a community property state and your spouse defaults on a credit card, you should be aware that the chances of your being named as a defendant are slim but real nevertheless. If a creditor obtains a judgment against you, the creditor may be able to garnish your wages, levy your bank accounts, and/or place liens on your property.
Find an attorney in your state of residence who has experience in family law or debt law. He or she will be able to ask probing questions, review your documentation, and give you precise answers based on your situation.
I hope this information helps you Find. Learn & Save.
Struggling with debt?
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q4 2022 was $16.91 trillion. Auto loan debt was $1.55 trillion and credit card was $0.99 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Mississippi, 35% have any kind of debt in collections and the median debt in collections is $1598. Medical debt is common and 16% have that in collections. The median medical debt in collections is $719.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.
What may be confusing is a distinction between California law and the common practice of creditors. First, let us look at the law. In general, community property is the earnings during marriage that is the product of a spouse’s time, efforts, energy, and skill. In California, the presumption is all property acquired during marriage is community property. Property acquired before marriage is considered separate, unless the parties transform the assets into community debt.
In California, pre-marital debt is treated differently from assets. See California Family Code Section 910(a), which reads in part:
Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.
In other words, community funds may be reached by a judgment-creditor to satisfy a debt. However, the wages of a debtor's spouse cannot be reached by a judgment creditor. See California Family Code Section 911:, which reads in part:
The earnings of a married person during marriage are not liable for a debt incurred by the person's spouse before marriage. After the earnings of the married person are paid, they remain not liable so long as they are held in a deposit account in which the person's spouse has no right of withdrawal and are uncommingled with other property in the community estate...
In practice, judgment-creditors rarely pursue spouses of judgment-debtors in California because they cannot pursue a wage garnishment, which is usually the most lucrative remedy available. However, if the spouse has significant separate assets, then the creditor can pursue those subject to the restrictions of Family Code 913 and 914. Let us start with 913:
The separate property of a married person is liable for a debt incurred by the person before or during marriage. (b) Except as otherwise provided by statute: 1. The separate property of a married person is not liable for a debt incurred by the person's spouse before or during marriage...
This seems to take the non-debtor spouse off the hook. Not so fast. See 914:
(a) Notwithstanding Section 913, a married person is personally liable for the following debts incurred by the person's spouse during marriage: 2. A debt incurred for necessaries of life of the person's spouse while the spouses are living together. 3. Except as provided in Section 4302, a debt incurred for common necessaries of life of the person's spouse while the spouses are living separately. (b) The separate property of a married person may be applied to the satisfaction of a debt for which the person is personally liable pursuant to this section. If separate property is so applied at a time when nonexempt property in the community estate or separate property of the person's spouse is available but is not applied to the satisfaction of the debt, the married person is entitled to reimbursement to the extent such property was available.
Family Code 914 (b) makes it possible, under law, to pursue a spouse's separate assets for a debt.
As mentioned, it is rare for judgment-creditors to pursue spouses of California debtors. Perhaps non-California judgment-creditors do not understand California law. Perhaps spouses of debtors do not have significant assets. Whatever the reason, the practice of pursuing spouses is unusual, but not impossible under the law.
Let us say for the sake of argument that the wedding is scheduled for November 10. If the lawyers representing the two parties finish bickering and give the a final draft to the happy couple on November 3, all is well because the parties can sign on November 9th or 10th. However, if the lawyers finish on November 5, the 7-day rule pushes the signing date out to November 11.
The parties can still sign the document, but if there is ever any litigation arising from contract, the disgruntled party will challenge the validity of the contract and probably have it thrown out.
All of what I wrote in this comment is valid for California, and may not be valid in other states.