Can Creditors Sell Community Property to Satisfy Spouse’s Debt?

Can Creditors Sell Community Property to Satisfy Spouse’s Debt?

Updated on November 29, 2019

In California, property owned by spouses domiciled in California are governed under California’s community property law, regardless of where their property is located. (Cal. Fam. Code § 760.) Under California’s statutory scheme, anything that a spouse earned or obtained throughout the course of the marriage through his or her time, energy, skills, or talents will likely be characterized as community property by default. In other words, anything that a spouse earns or obtains in the marriage comes under equal ownership with the other spouse.

If a couple decides, for whatever reason, that the property is not to be treated as community property at the time of their divorce or one spouse’s death, then the parties may execute and record a transmutation to change the character from community property to one spouse’s separate property. (Cal. Fam. Code § 850.)

Often, the most valuable community property asset that a married couple may have is their real property. If one spouse has outstanding debt, there can be significant consequences that impact the couples’ ownership interest in the real property and overall financial situation.

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The reality is that a creditor can sell your community real property to satisfy your spouse’s debt.

One of the recourses that a creditor has to collect debt is to place a judgment lien on community real property and foreclose against the property to satisfy the debt of one spouse. This  means that all of the couple’s equity in the real property can be used to satisfy one spouse’s debt, and the non-debtor spouse will not be able to claim 50% of the sales proceeds after the foreclosure sale.

The general rules are as follows:

  1. Both spouses are  liable for debts incurred by either spouse during the marriage
  2. Both spouses maybe  liable for personal injuries or property damage caused to third parties by either spouse.
  3. Community property can be used by a creditor to satisfy a debt or judgment incurred during the marriage.

Of course, the law is more nuanced than the three simple rules provided above.   Indeeed, there are many exceptions to the general rules based on case-specific facts. For example, if one spouse incurs a debt while the spouses were living separate and apart but before the divorce or legal separation is finalized, different rules may apply.  There can also be complicating factors based on separate property rules or separate property becoming co-mingled with community property.

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At Schorr Law, we have significant experience resolving disputes and dealing with collection activities related to real property. Contact us today for a consultation: You can call us at (310) 954-1877, send us an email to [email protected], or send us a message through our contact form here.

See related: Community Real Property: Spouse or Domestic Partner Joint Ownership