ARE COMMUNITY ASSETS EXECUTABLE FOR DEBTS OF ONE SPOUSE?

Whether a creditor of one spouse can go after community assets depends in part on how the property is characterized. If it is truly community property (loosely defined as “not separate property”), then the answer is “probably yes.”

Separate property is loosely defined as anything acquired:
 

  1. before marriage;
  2. during marriage subject to a prenuptial agreement;
  3. as a gift during marriage expressly to one individual from a third party; or
  4. as a result of inheritance or personal injury settlement (not including recovery of lost wages); and
  5. that the separate property was not subsequently “transmuted” (converted) by commingling with joint assets or re-titling in both names.


The default position is that all property acquired during the marriage is community in character. A prenuptial agreement defeats this presumption to the extent that the agreement “contracts around” the community property laws of the state. If the prenuptial agreement specifies that each spouse retains their income as their separate income, then the rule of community property does not apply to income. If the agreement specifies that each party also retains all after acquired assets and debts as their separate property, then it too remains theirs alone.

Exceptions to the default are those of inheritance, gifts from third parties, and personal injury awards (not including awards for lost wages). These are presumed to be separate property. Unless the inheritance was expressly given to both parties, the assumption is that it is bequeathed to the individual only. Similarly, personal injury awards for pain and suffering, and other compensatory damages, are considered separate property in that they are in compensation to the individual for their loss or suffering.[1] And gifts from third parties that are expressly given to one party is, like inheritance, considered the separate property of the recipient.[2]

Assuming, then, the property is community property, the legal presumption is that debt of one spouse is debt of both. Assets of the community, including income of either party, assets held by either party or jointly, or accounts receivable of the community, can be used to satisfy a debt.

Often, people think that their income is theirs, not that of their spouse. But unless they executed a prenuptial agreement, if they are residents of Nevada (and the property is held here), the income is community income—meaning both parties have an equal, undivided interest in the income.[3] Similarly, if the debt was incurred during the marriage, and unless it was used for purely separate purposes (called “marital waste”), then the debt is also community in character. (Marital waste is best defined by example: money spent on prostitutes, alcohol, and gambling, assuming only one party was involved and the other did not consent or participate.) The theory goes: if you borrowed money to use for something not considered marital waste, then the community benefitted from that borrowed money. Thus, the community owes it, not just the individual who signed the note.

Thus, community assets can certainly be attached to satisfy debts of either or both parties. The law does not view spouses as separate beings under community property, but treats them as a single entity for purposes of ownership and responsibility.

The flip-side to this is that if one party goes bankrupt, it forecloses action by creditors in attempting to attach the assets of the non-debtor spouse.[4] Because community property is owned by both in community, then the automatic stay emanating from the debtor-spouse is enough to prevent attachment.

But that does not necessarily keep the IRS at bay. In fact, even pre-marital tax debt, since it is usually not dischargeable in bankruptcy, can expose community property to attachment. In such cases, the government can attach up to one-half of the community property (the debtor-spouse’s share) to satisfy a tax obligation.[5]

So, the short answer is “probably yes.”

 


[1] Compensation for lost wages are excluded from the presumption of separate property because all income (unless kept separate by a prenuptial agreement) is considered community income.

[2] Gifts from a spouse are typically (though not always) considered community property if only because they were likely purchased using community funds. And if they were purchased using the giver’s separate property, it would likely be considered a gift to the community.

[3] Robison v. Robison, 100 Nev. 668, 691 P.2d 451 (1984).

[4] Norwest Financial v. Lawver, 109 Nev. 242 849 P.2d 324 (1993).

[5] Id.