Debts of a Deceased Spouse – Lake County Record-Bee

The settlement of the estate of a deceased spouse relates to assets and debts belonging to one or both spouses. Debts can be secured (eg, mortgage debt), unsecured (eg, credit card debt), or partially secured and unsecured. In California, debts and assets are characterized as community property (jointly held) or as separate property (separately held).

As a general rule, the community patrimony of a married couple is liable for a debt contracted by either spouse before or during the marriage, regardless of which spouse has the management and control of the property and either or both spouses are parties to the debt or to a judgment for the debt [Family Code section 910].”

Following, “[t]Separate property of a married person is liable for a debt incurred by the person before or during the marriage [Family Code section 913(a)].” As a general rule, however, “a married person’s own property is not liable for a debt incurred by the person’s spouse before or during the marriage. [Family Code section 913(b)(1)].” As well, “[t]The joining or consent of a married person to a charge on the property of the community domain to secure the payment of a debt contracted by the spouse of the person does not subject the separated property of the person to the responsibility of the debt unless the person has also incurred the debt [Family Code section 913(b)(2)].”

However, in an estate or trust administration, debts may be divided between the estate of the deceased spouse and that of the surviving spouse. Generally, separate debts of either spouse are assigned to the separate property of the debtor spouse, and debts on common property are assigned to the common property of the spouses. In the absence of an agreement between the surviving spouse and the representative in the administration of the estates or the trust of the deceased, the following rules apply [Probate Code sections 11444 and 19324].

If the debt is a separate secured debt of one of the spouses, the secured debt is allocated to the equity of the assets securing the debt. If it is insufficient, the overpayment is deducted from the other separate assets of the debtor spouse.

For example, if one spouse owns real estate with a pre-marital mortgage, the mortgage is a separate debt secured by the spouse’s separate property. If there is insufficient equity to repay the mortgage, the excess debt would be allocated to the debtor spouse’s other separate assets (for example, the debtor spouse’s property purchased before the marriage and gifts received during the marriage).

If the debt is a separate unsecured debt of one of the spouses, the unsecured debt is generally assigned to the separate assets of the debtor spouse. If there is insufficient separate property, the unpaid debt is assigned to half the debtor spouse’s share of any joint property. If it is also insufficient, it is then allocated to half of the share of the non-debtor spouse in the joint assets.

For example, if a spouse owes credit card debt incurred before the marriage, it is first attributable to the spouse’s separate real estate. Any excess debt is attributable to half of the debtor spouse’s interest in the common good.

If a community property debt is secured, the secured debt is allocated to the equity of the community property asset. Any excess debt is charged against the married couple’s other common property.

For example, if a married couple has purchased a residence, the mortgage is a community property debt secured by community property. If there is insufficient equity to repay the mortgage, the excess debt is allocated to other community assets, for example, bank and investment accounts funded by marital income.

If a community property debt is unsecured, it is usually assigned to community property. Any excess debt is divided equally between the separate assets of the spouses. If necessary, separate property from a spouse will pay more than half.

For example, if the couple owes credit card debt incurred during the marriage, then that debt is charged against the couple’s community assets at large, such as accrued marital income.

Finally, if necessary, a court petition is used to approve the distribution of debts between the estates of a deceased and a surviving spouse. The foregoing brief discussion is not legal advice. Consult a qualified lawyer or financial adviser for advice.

Dennis A. Fordham, attorney, is a state bar certified specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, CA. He can be reached at [email protected] and 707-263-3235.

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