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Creditor Collecting a Separate Debt With Community Property in Arizona

Mon 11th Jul, 2016 Arizona Community Property Laws

Many people have a question about community liability for a spouses’ debt in Arizona. Specifically, can an Arizona couple’s community property be taken in payment of a debt made separately by the husband? What if the husband incurred the debt in a non-community property state? In Bainum v. Roundy, 521 P.2d 633 (Ariz. Ct. App. 1974), the 9th Circuit Court of Appeals considered these issues.

Husband (Mr. Bainum) and Wife (Mrs. Bainum) were married and lived in Arizona, a community property state. Husband owed Mr. Roundy money for a stock sale in Utah. He signed a promissory note for the debt. Mr. Roundy sued on the promissory note in Arizona. The trial court entered judgment in his favor against both Mr. Bainum and his Wife. The Bainum’s appealed.

The action against Mr. Bainum was filed after the limitations period had passed. The suit would normally be dismissed on this basis. However, Arizona law extends the time when a debtor acknowledges the debt in writing and promises to pay. In this case, the trial court found Husband had acknowledged the debt in a letter to Mr. Roundy. Mr. Bainum wrote: “I am sure we can reach an understanding in a satisfactory arrangement for the repayment of my note.”

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Debts of a Spouse and Community Property Laws

The trial court ruled that this letter was a signed, written acknowledgment of the debt. As such, it extended the time to file suit. The Court of Appeals agreed. Husband objects to the fact that the judgment was against his Wife, as well as himself. He argues that she could not be held responsible for the debt. He alone executed the promissory note and did so in a non-community property state.

However, the Court of Appeals said that the judgment did not impose liability on the Wife. Rather, it subjected the community (composed of Mr. Bainum and Mrs. Bainum) to the debt. In Arizona, the execution of a note by the husband usually binds the community. The question here is whether the Husband incurred the debt in a non-community property state.

The Court of Appeals reviewed case law from other jurisdictions. It found that under Utah law, the Husband’s debt would subject the couple’s community property to payment, not Wife’s separate property. Therefore it ruled that Mr. Bainum’s and Mrs. Bainum’s community property is subject to the debt involved in this litigation. The Court of Appeals affirmed the judgment below.

Community Liability for a Spouse's Debt in Arizona.

If you need information about liability for a spouse’s debts in Arizona, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona divorce attorneys have decades of combined experience successfully representing clients in divorce cases in Arizona.

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