Community Property and Suretyship

Topics: Marriage, Common law, Debt Pages: 8 (2483 words) Published: December 4, 2012
Community Property
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin Alaska Allows opt in
A community property state is one in which property obtained by either spouse during the marriage is treated as property equally owned by the marital unit—the “community”—regardless of which spouse “earned” that property. Other states may take an equitable view by taking into account each spouse’s contribution to property acquired during the marriage. This distinction has implications most commonly seen in divorce cases, where property is divided among the divorcing spouses. However, community property law can also seriously impact creditors if proper steps are not taken to obtain a proper personal guaranty. The effect of the laws in those states using the community property approach can be significant, and require a careful analysis for a company extending credit. Most of these states create statutes protecting the marital “community” by requiring signatures of both the husband and wife on instruments that create obligations through a negotiable instrument, personal guaranty, or real estate transaction. While the creditor may think it is entering into an arm’s-length transaction with another sophisticated business, it may well find itself needing to gather information about the guaranteeing officer’s marital status. If a lending company properly obtains a spouse’s signature in a community property state, many of these states have the additional requirement that the creditor name both spouses as defendants to any lawsuit in order to assert an interest in the community property. It is important to know that certain federal laws and regulations limit the ways creditors can inquire into the borrower’s marital status and require a spouse’s signature. In some cases, the signature of a spouse may only be required if credit is being extended to an individual living in a community property state. Therefore companies extending credit should carefully examine the law of the guarantor’s state and the state in which its property is located, so that they do not find themselves in the unexpected position of extending credit based upon documents that do not afford them any protection or ability to reach a guarantor’s personal assets. 11601 Wilshire Associates v. Helen Grebow, 98 Daily Journal D.A.R. 5789 (1998),

To avoid potential litigation, a contribution agreement among any group of co-guarantors that includes married individuals should clearly address this issue. If any married guarantor’s spouse does not sign the guaranty, it is important that the agreement also address the issue of whether the other guarantors will have recourse to the community property, entireties property or other form of marital property of that guarantor and his or her spouse or whether recourse will be limited to the guarantor spouse’s separate property. If the agreement provides for recourse to the marital property, it is advisable that the non-guarantor spouse also join in or consent to the contribution agreement to the extent required under applicable state law in order to give effect to these provisions.

Fannie Mae Guaranty
Guarantor’s obligations under this Guaranty constitute a present and unconditional guaranty of payment and not merely a guaranty of collection. If Guarantor (or any Guarantor, if more than one) is a married person, and the state of residence of Guarantor or Guarantor’s spouse is a community property jurisdiction, Guarantor (or each such married Guarantor, if more than one) agrees that Lender may satisfy Guarantor’s obligations under this Guaranty to the extent of all Guarantor’s separate property and Guarantor’s interest in any community property.

Ca. Civil Practice Family Law Litigation
Chapter 6
Legal Principles
Except as expressly provided to the contrary, community property is liable for a debt incurred by either spouse during marriage, whether or not...
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