Separate Verses Community Estate Debt

Case Commentary

CRME Financial Services v. Pamela Parton

Once the community estate is divided in a marriage dissolution, a spouse’s personal liability and liability of the separate vs. the community estate for debts incurred before and during marriage are determined exclusively under Family Code 916. Keep in mind that regardless of who is assigned the debt in the property division, the debtor�s spouse remains personally liable to the creditor for debts incurred before or during the marriage. Creditors may reach the debtor spouse�s separate property as well as his or her share of the community property. The non-debtor spouse is liable only if the debt is assigned in the property division judgment.

In this non family law appellate court decision, CRME successfully prevailed at trial in a collection proceeding holding Pam liable for hospitalization and medical fees that were incurred by her husband subsequent to the parties’ separation. This debt was never assigned to Pamela under the Judgment for Dissolution and yet the creditor secured a judgment against her. Only due to the efforts of the Legal Aid Society of San Diego was the clear error by the trial Court reversed. The Trial Court erroneously applied Family Code 914 holding Pamela Parton liable, as the expense was in the nature of “necessaries.” This Court failed to apply Family Code 916, which is the exclusive statutory provision which permits a creditor to collect from a debtor spouse only if this debt was assigned under the Judgment. Without this assignment, there is simply no new creditor relationship. CRME simply had no right to pursue collection from Pamela, the nondebtor spouse.

As a practice pointer, should you represent a party who has incurred a post separation debt and want the non-debtor spouse to be responsible, it is incumbent to have those specific debts assigned to the non-debtor spouse under Family Code 916. This is the only way in which the debtor spouse can avoid liability. If you are representing the non-debtor spouse, it is essential that your marital settlement agreement or stipulated Judgment specifically identify those debts incurred by the debtor spouse be confirmed to him or her so that your client, the non-debtor spouse, is immune from liability. CRME vs. Parton emphasizes the importance of covering all the bases regarding posts separation debts and for all family law practitioners and judicial officers to have a clear understanding of both Family Code 914 and 916 and their applications. As a practice tip, make sure that there is absolute certainty in your Marital Settlement Agreement or Stipulated Judgment what both pre-separation and post-separation debts are being assigned to the respective parties. The devil is always in the details.The last thing you want to hear is a call from your client saying that creditors are calling for payment of the debt and your marital settlement agreement or Stipulated Judgment does not clearly address this issue.