Creditor Rights/Rights of Reimbursement

Question 1

In general, what are creditor’s rights to reach property?

Answer 1

In general –> Creditor can reach ALL of debtor spouse’s SP and all of the CP to satisfy debts incurred before and during marriage

NOTE –> for purpose of creditor’s rights, quasi-CP is treated as CP

Question 2

When is a debt considered incurred for contract?

Answer 2

when K is entered into

Question 3

When is a debt considered incurred for tort liability?

Answer 3

when tort occurs

Question 4

How is a spouse’s child support and/or spousal support from prior relationships treated?

Answer 4

It’s treated as a debt incurred before the marriage

Question 5

When is debt incurred in all other circumstances?

Answer 5

At time obligation arises.

Question 6

What is the special rule for encumbrances of community property?

Answer 6

If married person joins in an encumbrance of CP to secure a debt incurred by a spouse, that person’s SP is NOT liable for the debt unless they also incurred the debt

Question 7

Is a married person personally liable for torts of spouse?

Answer 7

• A person is NOT personally liable for her spouse’s torts UNLESS she would be liable for them if the marriage did not exist

Question 8

What are the rules re: satisfaction of tort liability?

Answer 8

If done for benefit of community —> liability issue first satisfied from CP, then from tortfeasor’s SP

If not for benefit of community –> liability satisfied first from tortfeasor’s SP, then from CP

NOTE –> if order of satisfaction is not followed, injured spouse will have reimbursement claim

Question 9

What is a spouse’s liability for debts at divorce?

Answer 9

A spouse is liable for all:

1. debts he incurred; AND
2. all debts which are assigned to him by court

NOTE –> if a spouse’s property is applied to satisfy a debt assigned to the other spouse, he has a right to reimbursement of the amount applied, plus interest, from other spouse

Question 10

What are the two situations that need to be considered with regards to creditor’s rights at death of spouse?

Answer 10

1. when property passes through probate

2. when property does not pass through probate

Question 11

What is the rule w regards to creditor’s rights at death of a spouse when property passes through probate?

Answer 11

1. Probate code requires that every debt of decedent and surviving spouse first be characterized as community or separate.
2. THEN –> each debt will be allocated accordingly against separate or community portions of decedent’s estate and surviving spouse’s property

Question 12

What is the rule w regards to creditor’s rights at death of a spouse when property passes does NOT pass through probate?

Answer 12

UNLESS survivor affirmatively elects formal administration—> “set-aside law” controls

Under “set-aside law” –> the surviving spouse is personally liable for debts chargeable against CP, quasi-CP, and decedent’s SP that pass to surviving spouse without administration

Question 13

Under what circumstances may spouse seek reimbursement against other spouse for payment of debts?

Answer 13

One spouse may seek reimbursement against the other IF:

1. CP is applied to satisfy child/spousal support from prior relationship and debtor had SP available to pay;
2. when one spouse’s SP was applied to debts incurred by other spouse for necessaries and the debtor had SP or CP available to pay;
3. when order of satisfaction for tort debts is not followed

NOTE –> reimbursement applies UNLESS there is a written waiver

Question 14

With regards to reimbursement rights, does it matter which spouse paid the debt?

Answer 14

No.

Question 15

What is the measure of the value of reimbursement?

Answer 15

The measure of reimbursement is the value of the property applied at the time the right arose

Question 16

When must right to reimbursement be exercised?

Answer 16

1. within 3 years after spouse has actual knowledge of application of property against debt; OR
2. in divorce or death proceedings

Question 17

What are the other case law and statutory reimbursement rights?

Answer 17

1. debts paid after separation but prior to trial;
2. unauthorized gifts
3. when one spouse used CP to improve his own SP
4. education expenses and loans
5. when one spouse contributed SP to purchase or improvement of CP;
6. when one spouse contributed property to the other spouse’s separate estate