Absent a prenuptial agreement, how are liabilities allocated between divorcing spouses?

The characterization of property as separate or community is important when it comes to liability for debts incurred by either spouse, including debts incurred by a spouse before the marriage. Family Code section 910 states in relevant part: "Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt." (Fam. Code, § 910, subd. (a).) Notwithstanding this provision, the earnings of the non-debtor-spouse⁸ -- which are community property under Family Code section 760 -- "are not liable for a debt incurred by [the other] spouse before marriage." (Fam. Code, § 911, subd. (a).) Those earnings remain not liable for the debtor-spouse’s premarital debt, however, only "so long as they are held in a deposit account in which the person’s spouse has no right of withdrawal and are uncommingled with other property in the community estate, except property insignificant in amount." (Ibid.)

In short, although a married couple’s community property is liable for the premarital debts of either spouse, a portion of that community property -- the non-debtor-spouse’s earnings and income -- is shielded from liability for that premarital debt to the extent that those earnings and income are held in an account to

[243 Cal.Rptr.3d 562]

which the debtor-spouse does not have access and are not commingled (except for insignificant amounts).

(a) Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.

(b) "During marriage" for purposes of this section does not include the period after the date of separation, as defined in Section 70, and before a judgment of dissolution of marriage or legal separation of the parties.

Notwithstanding Sections 2620 to 2624, inclusive, all separate debts, including those debts incurred by a spouse during marriage and before the date of separation that were not incurred for the benefit of the community, shall be confirmed without offset to the spouse who incurred the debt.

(a) The earnings of a married person during marriage are not liable for a debt incurred by the person's spouse before marriage. After the earnings of the married person are paid, they remain not liable so long as they are held in a deposit account in which the person's spouse has no right of withdrawal and are uncommingled with other property in the community estate, except property insignificant in amount.

(b) As used in this section:

(1) "Deposit account" has the meaning prescribed in paragraph (29) of subdivision (a) of Section 9102 of the Commercial Code.

(2) "Earnings" means compensation for personal services performed, whether as an employee or otherwise.

For the purposes of this part, quasi-community property is liable to the same extent, and shall be treated the same in all other respects, as community property.

(a) The separate property of a married person is liable for a debt incurred by the person before or during marriage.

(b) Except as otherwise provided by statute:

(1) The separate property of a married person is not liable for a debt incurred by the person's spouse before or during marriage.

(2) The joinder or consent of a married person to an encumbrance of community estate property to secure payment of a debt incurred by the person's spouse does not subject the person's separate property to liability for the debt unless the person also incurred the debt.

(a) Notwithstanding Section 913, a married person is personally liable for the following debts incurred by the person's spouse during marriage:

(1) A debt incurred for necessaries of life of the person's spouse before the date of separation of the spouses.

(2) Except as provided in Section 4302, a debt incurred for common necessaries of life of the person's spouse after the date of separation of the spouses.

(b) The separate property of a married person may be applied to the satisfaction of a debt for which the person is personally liable pursuant to this section. If separate property is so applied at a time when nonexempt property in the community estate or separate property of the person's spouse is available but is not applied to the satisfaction of the debt, the married person is entitled to reimbursement to the extent such property was available.

(c)

(1) Except as provided in paragraph (2), the statute of limitations set forth in Section 366.2 of the Code of Civil Procedure shall apply if the spouse for whom the married person is personally liable dies.

(2) If the surviving spouse had actual knowledge of the debt prior to expiration of the period set forth in Section 366.2 of the Code of Civil Procedure and the personal representative of the deceased spouse's estate failed to provide the creditor asserting the claim under this section with a timely written notice of the probate administration of the estate in the manner provided for pursuant to Section 9050 of the Probate Code, the statute of limitations set forth in Section 337 or 339 of the Code of Civil Procedure, as applicable, shall apply.

(d) For purposes of this section, "date of separation" has the same meaning as set forth in Section 70.

The California presumption, that all property acquired by married persons is "community property," does not have a "community debt" matching concept. The order in which debts, such as this one, may be satisfied from community property or personal property is a function of whether the debt was incurred for the benefit of the community. Cal. Fam. C. § 1000(b).⁸ However, with limited exceptions not relevant here,⁹ personal liability for debts incurred by a married person inures only to the party to the debt. Except as provided by statute, "The separate property of a married person is not liable for a debt incurred by the person's spouse before or during marriage." Cal. Fam. C. § 913(b)(1). Likewise, a debt resulting from the tortuous injury to the person or property of another by a married person does not create liability on the part of the debtor's spouse unless the spouse would be independently liable in the absence of the marriage.

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Cal.Fam.C. § 1000(a).¹⁰ Here, the Fords have not shown that Shannon would be personally liable for the claim underlying the Judgment and they cite no authority for that proposition.

Under the facts of our case, the analysis under either section appears to lead to the same result. Under Family Code section 1000, subdivision (b), the liability of a married person is to be satisfied from separate

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or community property depending on whether the act or omission complained of "occurred while the married person was performing an activity for the benefit of the community."

Family Code section 2625 provides in relevant part that "all separate debts, including those debts incurred by a spouse during marriage and before the date of separation that were not incurred for the benefit of the community, shall be confirmed without offset to the spouse who incurred the debt." Here, too, the question of whether a debt is characterized as a "separate debt" might depend on whether it was incurred for the benefit of the community. We must therefore look at how these distinctions have been applied.

The major differences between the two cases cited by the parties are that in In re Marriage of Stitt, supra, 147 Cal.App.3d 579, 195 Cal.Rptr. 172, the offense was an intentional tort and the court found there was no evidence of a benefit to the community, while in In re Marriage of Hirsch, supra, 211 Cal.App.3d 104, 259 Cal.Rptr. 39, there was evidence of no more than gross negligence and evidence also that the community benefited from the acts that led to the liability. In the present case we have an intentional tort (as well as a crime) but we also have benefit to the community. Applying the principles of the cited cases to the facts before us, we conclude that the trial court correctly decided that Wife should be held liable for the attorney fees required for her defense in both the civil and the criminal actions, and that she should be liable also for the state and federal tax liability arising out of the embezzlement, including interest and penalties. Wife engaged in intentional tortious and criminal activity and knowingly accepted the risk that she would be caught and would have to face the consequences. Husband, who knew nothing of the risk and could do nothing to avoid it, should not in fairness bear the same burden once it did go wrong. In this regard our decision here follows the ruling in Stitt.

[49 Cal.App.4th 310] As to the $150,000 civil settlement, however, we find the considerations are different. Wife was still engaged in an intentional tort, and Husband still knew nothing about it. Here, however, there was uncontradicted testimony that the community received the benefit of the embezzlement. Even if the numbers were somewhat uncertain, it was apparent that the community had received a major infusion of funds over the years, and it was clear that all the embezzled funds had been put to community, and not separate, use. Mr. Anderson testified that the amount of the settlement was based on estimates of the amount that had been taken, so the settlement was no more than an attempt at restitution. To that extent, directing payment of the settlement by the community would do no more than bring it back to where it had been. Even the court commented that the circumstances of the parties in 1990 were not substantially different from their circumstances in 1984.

We hold that the trial court erred by allocating the entire $150,000 settlement, which had previously been paid out of community property, to Wife as part of her share of the community property distribution. The community had shared in the benefit and could properly be asked to share in the cost. Although this was not exactly the outcome in In re Marriage of Hirsch, supra, 211 Cal.App.3d 104, 259 Cal.Rptr. 39, dictum in Hirsch indicated the court there would have approved such a result in this case; the court there stated, "For example, had wife put the embezzled funds into a community account or other community property, it would have been appropriate for the community to bear the corresponding loss." (Id., at p. 110, fn. 8, 259 Cal.Rptr. 39.)