Community Debt: It does not exist
What is community debt? A husband and wife may have heard the term once or twice and may have even found the term online. The term "community debt" not only implies that both spouses are personally liable for the debt of the other, but it also implies that creditors may reach all nonexempt community property to satisfy a debt. Such a statement provides spouses with a false sense of security that their personal property may not be liable. However, this is not necessarily true. Thus, this term has done nothing more than confuse spouses.
To make it clear, "community debt" simply does not exist.
Who is liable for what?
In Texas, spouses may ask themselves four simple questions that can provide them with some form of answer to the overly complex issue of "what property is liable for which debts?" The questions are as follows:
When was the debt occurred? Was it incurred prior to or during the marriage?
If the debt was incurred prior to the marriage, creditors may reach:
- The spouse's separate property, sole-management community property, and joint-management community property.
- Creditors CANNOT reach the other spouse's separate or sole-management community property for torts or contracts that arose before the marriage.
- If the debt was incurred during the marriage, please see below.
- If the debt was incurred prior to the marriage, creditors may reach:
What type of debt is it?
- If the debt is contractual, and only one spouse incurred the debt, the contract creditor can reach that spouse's separate property, sole-management community property, and joint-management community property. The creditor CANNOT reach the separate property or sole-management community property of the other spouse.
- If the debt is tortious is nature and was incurred during the marriage, a creditor can reach all of the tortfeasor's separate property, sole-management community property, and joint-management community property. The creditor can also reach the other spouse's sole-management community property. What cannot be reached? The other spouse's separate property.
- If the debt was incurred after the marriage, in both contract and tort liability, a creditor may collect a judgment from joint-management community property that was awarded during the divorce.
Are there any other substantive rules of law which would make one spouse personally liable for the debts of the other spouse?
- Was there a joint obligation? In other words, did both spouses sign a contract or commit a tort? If so, the spouses are jointly and severally liable and the entire nonexempt marital estate would be subject to liability.
- Did the spouses sign a joint tax return? If so, both spouses are jointly and severally liable.
- Is there a principal-agent relationship? Such relationship may be created, but the fact that there is a marriage relationship, in and of itself, is not sufficient to generate vicarious liability.
- Does the Necessaries Doctrine apply? Under the Texas Family Code 2.501 and 3.201(a)(2), a spouse is personally liable for the "necessaries" of the other spouse. Necessaries has been determined through case law to include services provided by a third-party, such as doctors, hospitals, nursing homes, and sometimes even lawyers. If a spouse was provided with a service that is deemed to be "necessary," both spouses are jointly and severally liable and the entire non-exempt marital estate is subject to liability.
The meaning behind the terms
The next set of questions spouses may ask include what is separate property? What is sole-management community property? What is joint-management community property?
Separate property is generally referred to as property owed or obtained by a spouse prior to the marriage. More specifically, property is deemed to be the separate property of the spouse if the spouse has sole management, control, and disposition of that property.
Sole-management community property is property that a spouse would have owned if he or she were single. Examples generally include wages and income from a spouse's separate property. Sole-management community property is often referred to as "special community property." WARNING: do not be confused! Just because property may be classified as sole-management community property does not mean that your spouse no longer has a claim to the property upon divorce. This is another matter.
Joint-management community property is sole-management community property that has been commingled with other property. In other words, joint-management community property is subject to each spouse's control and disposition.