DEBTS AND CREDITORS’ RIGHTS

Question 1

What is the general presumption for Credit acquisition and can it be rebutted?

Answer 1

There is a rebuttable presumption that property purchased with borrowed funds (on credit) during marriage is CP debt.

–> Can rebut with the “intent of the lender” test: A showing that the lender relied exclusively on SP when extending credit may rebut the presumption.

–> Earning capacity: If the credit is based on earning capacity, it is a CP debt because earning capacity is a community asset.

Question 2

What are the types of debts and when are those incurred?

Answer 2

Creditor’s rights are determined by the time a debt was incurred.

1. Contract debt is incurred at the time the contract is made.
2. Tort debt is incurred at the time the tort occurs. (A non-tortious spouse is not personally liable for the tortious spouse’s torts, unless they would be liable even if the parties were not married.)
3. Criminal liability (for restitution, or fines) is treated in the same way as tort liability.
4. Child or spousal support debt from a previous marriage is treated as a debt incurred before marriage regardless of when the court order is made or modified.
5. Other debts: All other debts are incurred at the time the obligation arises.

Question 3

How to analyze a debt and creditor’s question?

Answer 3

Thus, the question of debts and obligations should be analyzed as a two-step process:

(1) what type of debt is it (contract—necessaries or otherwise, or tort)?

(2) when was the debt incurred (before marriage or during marriage)?

(3) based on the time it was incurred and the type of debt, whose separate property could be liable in addition to the community property?

(4) was the debt incurred for the benefit of the community? and

(5) based on whether it was incurred for the benefit of the community, in what order is the debt satisfied?

Question 4

Describe the order of satisfaction for debt.

Answer 4

1. If debt is for the community interest: CP first, then SP of either spouse.
2. If debt is for the separate interest: SP of debtor spouse first, then CP.
3. SP debts incurred before marriage: All the community property, and the debtor’s separate property, are liable for a debt incurred by the debtor spouse before marriage, but the separate property of a non-debtor spouse is never liable.
4. SP debt (by one spouse) incurred during marriage: All the community property, and the debtor’s separate property, are liable for a debt incurred by the debtor spouse during marriage. The separate property of a non-debtor spouse is only liable if the debt is for “necessaries” such as living expenses (food, shelter, medicines, and the like).