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Can Creditors Pursue Me for Debts of My Deceased Spouse?

Debt Collection After Spouse DiesBecause California is a “community property” state, the community property is liable for the debts incurred by either spouse during a marriage. This means that, again in general, after the death of one spouse the surviving spouse can be held liable for the deceased spouse's debts. This blog post explains how this works in practice, and what the exceptions are.

WHAT DIFFERENCE DOES CALIFORNIA’S “COMMUNITY PROPERTY” STATUS MAKE?

Most states follow “common law” property rules, in which debts signed for by one spouse during a marriage are mostly that spouse’s debt alone. There are only nine or ten “community property” states (depending on how you’re counting), most of them in the West and Southwest, many in areas once part of Mexico or Spain, from where this property system is derived. Almost all of the states around or near California are “community property” states, including Arizona, Nevada, Idaho, and Washington (Oregon being the exception).

The rule that a surviving spouse is usually liable for the debts of his or her deceased spouse follows from the core principle of “community property,” which is that income acquired during the marriage (except for inheritances or gifts to one of the spouses), and the assets derived from such income, are owned jointly by both spouses, regardless whose labor directly produced the income and assets. Just as such income and assets belong to the marital “community,” so do debts, regardless which spouse incurred them. The debts are considered to have been incurred for the benefit of the marital “community.” So, creditors of the “community” debts are entitled to be paid out of the “community” income and assets. The death of the spouse that incurred the “community” debt does not change this.

SO WHAT DO CALIFORNIA STATUTES SAY ABOUT THE SURVIVING SPOUSE’S LIABILITY?

For the reasons just stated the California Probate Code says, in its chapter on the “Liability for Debts of Deceased Spouse,” that “any [community] debt . . . may be enforced against the surviving spouse in the same manner as it could have been enforced against the deceased spouse if the deceased spouse had not died.” Cal. Prob. Code § 13553(a).

Also, “upon the death of a married person, the surviving spouse is personally liable for the debts of the deceased spouse chargeable against the [following] property”:

(a) one-half of the community property belonging to the surviving spouse, except the property that is exempt from collection under California law;

(b) one-half of the community property belonging to the deceased spouse; and

(c) the decedent’s separate property that does not pass through probate.

Cal. Prob. Code §§ 13550 and 13551.

WHAT DOES ALL THIS MEAN?

As the California Supreme Court explained in Collection Bureau of San Jose v. Rumsey, (which we’ll revisit shortly):

Subject to certain exceptions and limitations, Probate Code sections 13550 and 13551 makes the surviving spouse liable for the debts of the deceased spouse , but only to the extent such debts are chargeable against the community property of both spouses and the separate property of the deceased spouse passing to the surviving spouse without formal probate administration.

And what all that means is that in California the surviving spouse is liable for the deceased spouse’s community debts, with certain “exceptions and limitations.”

SO WHAT ARE THE “EXCEPTIONS AND LIMITATIONS”—

1. The creditor cannot pursue the surviving spouse personally for the deceased spouse’s separate (non-community) debts, including those incurred before the marriage, such as a prior student loan or child support—except to the extent of the surviving spouse’s half-interest in the community property.

Most separate debts would be those incurred before marriage, but separate debts can also be incurred during marriage, as explained more in other exceptions below.

Practically speaking, if there is very little community property after the death of a spouse, the surviving spouse would have little or no liability for the deceased spouse’s separate debts. In these situations the debt would essentially die with the deceased spouse.

2. The creditor cannot pursue the surviving spouse’s separate non-community income and assets, including income earned after the spouse’s death or assets purchased with that income. The surviving spouse’s liability for community debts of the deceased spouse does not extend to the surviving spouse’s separate property.

So if again there is little community property (beyond the liens and allowed exemptions), and the primary potential source of payment of a debt is the surviving spouse’s work income, this separate property is not available to the creditor. As a result, the deceased spouse’s community debt could well be simply uncollectible.

3. The surviving spouse can avoid liability altogether if the couple entered into a pre-nuptial or similar agreement.

Although assets acquired during marriage are presumed to be community property, you don’t have to be bound by that system. You can opt out by expressly agreeing to do so. Spouses can agree that they won’t have ANY community property, or that only certain property will be community property and the rest separate property of the spouses.

This can be done in a pre-nuptial agreement covering the entire marriage or can be for special purposes, for example when one spouse starts a business that the spouses agree will be separate property and incur separate debts.

4. The surviving spouse can avoid liability by the other spouse by so agreeing with each creditor.

Either spouse can enter into a credit transaction with any particular store, lender, or business supplier expressly agreeing that the creditor can only look to that spouse’s separate property for repayment of the debt. That would remove the other spouse from liability for any obligation on the debt. The practical challenge here is to get the creditor to agree, admittedly a problem if you are relying on both spouse’s credit.

5. The statute of limitations for a lawsuit against a surviving spouse is only 1 year, after which the creditor may no longer pursue the debt.

This limitation may be of the most practical help of all. In California, there is clear statute, backed up by a strong state Supreme Court decision—the Rumsey one mentioned earlier—which provides for “a one-year limitations period for surviving causes of action on the liabilities of decedents.” That is, a creditor has only one year after the death of one spouse to sue the surviving spouse on the debts of the deceased spouse, or else it forever loses its ability to pursue the debt.

As the California Supreme Court said in Rumsey:

Probate Code section 13554 expressly and specifically provided that the one-year limitations period of . . . Code Civ. Proc., § 366.2 . . . is applicable to actions against a deceased debtor spouse, or derivatively, against the surviving spouse, for debts remaining unpaid upon the death of the debtor spouse.

In the Rumsey opinion the Court held that this one-year statute of limitation was applicable even to claims for payment of the medical expenses of the deceased spouse’s last illness, even though a 4-year statute of limitations would normally apply to such medical expenses. The collection agency in this case sued within 4 years after the death of the spouse but more than 1 year after. The Court held that because the 1-year statute of limitation applied, the collection agency could not pursue its claim against the surviving spouse.

Although no doubt many creditors and collection agencies are familiar with this 1-year limit, it will still protect many survivors from the liabilities of their deceased spouses.

CONCLUSION

Although in theory if you are a surviving spouse the community property could be held liable for most of the debts of your deceased spouse, in practice you may be able to escape much, if not all, of this liability. And in situations where you are indeed liable, bankruptcy will usually discharge this liability permanently.

Bottom line: do not assume you owe your deceased spouse’s debts. This is definitely a complicated area that requires careful analysis by an experienced attorney.

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