Countless times, a client announces that he won’t marry the love of his life until he’s fixed his debt problems.
Noble thought, but unnecessary in California. Even though we have a community property system of marital property.
His bride will not become liable for the debts he brings to the marriage.
If the newlyweds elect to have community property, then the community property is liable for the baggage he brings, but those debts will not follow his spouse.
Personal liability
A basic principle of law is that each person is only personally liable for debts they create: marriage does not automatically make the spouses liable for each others debts. An exception is debts for necessities of life.
In California, a marriage can be seen as comprising three entities (wouldn’t you know it in California):
- husband,
- wife, and
- the community property.
California law assumes that assets acquired during marriage are community property. The entirety of the community property is liable for the debts of either spouse.
Under this system, then, if husband contracts a debt, husband’s creditor can reach both halves of the community property to satisfy that debt.
If the parties don’t have community property, as by reason of a pre nuptial agreement, then the creditor can reach only the husband’s earnings and assets for debts he incurs.
If the spouses divorce, the community is terminated. Once the community property is divided in the divorce, that former community property becomes the separate property of the recipient spouse.
Bringing debts to the marriage
Because community property is liable for the debts incurred by both spouses, before and after they marry, those debts can certainly impact the household finances.
Bankruptcy may be one way to wipe the slate clean. One spouse can file bankruptcy even during the marriage and get a discharge of that spouse’s debts. The community property is freed of claims against it for debts discharged in the bankruptcy.
Except for joint debt included in the bankruptcy case, one spouse’s bankruptcy filing doesn’t impact the other spouse’s credit record.
The other approach to an indebted spouse is to make an agreement, preferably before wedding, that limits or negates the acquisition of community property. That’s a prenuptial agreement.
A debt free spouse with a prenuptial agreement is insulated from loss of wages or property in their name to their spouse’s creditors.
More about community property in bankruptcy.
