In California, when a couple marries, all assets gained after the marriage are deemed marital assets under CA’s community property laws. Essentially, this means they are owned equally by both parties in the marriage. However, because California is a community property state this also means that any debt acquired by your spouse during your marriage essentially becomes yours and is equally shared.
But what happens if your partner/fiancé enters the marriage with debt?
Community property includes all assets acquired by either spouse during the marriage, except for assets acquired by gift, inheritance, bequest. Any assets you had before the marriage are deemed your separate property, which means you get to keep the entire asset UNLESS it is given to the community and/or commingled with community property.
So, what do we do with these debts?
Debts Either Spouse Incurred During the Marriage
Property acquired during marriage is liable for the debts of either spouse. So, a creditor whose claim arose during the marriage can collect your spouse’s unpaid credit card debt from both halves of the community property, including your wages.
Debts of Spouses Incurred Before the Marriage
The community is also liable for the debts of either spouse that arose before marriage. So, although this is not your debt and was the debt of your spouse before marriage, a creditor has a right to make a claim against the community property and can access all of the community to satisfy the debt.
Debts of the Spouse After a Separation
The community is severed when spouses separate. In Family Law, the Date of Separation is important as it signifies the ending of the community and returns your wages, etc. to separate property. Because of the severance, debts a spouse incurs after separation can only be collected from that spouse’s half of the community property that existed upon separation, plus any assets acquired after separation, named Separate Property.
So, how do we protect your portion of the community from your spouse’s potential creditors?
A California Supreme Court decision isn’t enough to hold title to assets or accounts in the name of one spouse alone. This is not enough protection to protect your share of the community if your spouse holds debt in their name alone, as stated above your assets or share of assets can still be taken to satisfy a debt.
It is possible in California to defeat what is called the community property presumption, meaning everything after marriage and until the date of separation belongs to the community as a whole. However, this requires a written agreement establishing the character of an asset as the separate property of one spouse, signed by the other spouse. Take a car for example, it is not enough for the car to be purchased and titled in only one spouse’s name if purchased during the marriage. The Car, although in only one spouse’s name, still belongs to the community as a whole. If the spouses wanted this car to be a separate asset of one spouse, additional writing of some sort needs to be drafted naming this as a separate asset of the one spouse, signed by the spouse who is essentially giving up their community interest in the asset, in this example the car. This term in Family Law is called transmutation. If it’s real property being transmuted, the agreement needs to be recorded in the county where the real property is located.
What counts as sufficient “writing” for transmutation?
A sufficient writing can be a prenuptial agreement which is an agreement, sort of like an insurance policy for your marriage, that states what assets/debts are being brought into the marriage by each spouse, it classifies whether or not those will be comingled into community or stay separate as well as deciding a head of time if assets obtained during the marriage will become the communities or stay separate as well, this also goes for debt. Prenuptial agreements are particularly important if one spouse enters into the marriage with large sums of debt because a Prenuptial Agreement severs the community before it can even begin, so without a “community” for a creditor to take assets from for debts, you would not be held liable for debts of the other spouse.
A Postnuptial agreement would also be considered sufficient writing, because similar to a Prenuptial Agreement which happens pre-marriage, a post-nuptial agreement is an agreement that essentially rearranges the assets owned by the community and assigns them as separate.
If we are looking only at one asset or a few assets, a written agreement transmuting some form of ownership other than community property works as well.