Debts of a deceased spouse

Settling a deceased spouse's estate involves assets and debts belonging to one or both spouses. Debts can be secured (e.g., a mortgage debt), unsecured (e.g., credit card debt), or partially secured and unsecured. In California debts and assets are characterized as community property (jointly owned) or as separate property (separately owned).

Generally, a married couple's, “… 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 .”

Next, “he separate property of a married person is liable for a debt incurred by the person before or during marriage .” Generally, however, “the separate property of a married person is not liable for a debt incurred by the person's spouse before or during marriage .” Also, “he 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 .”

Nonetheless, in a probate or a trust administration debts can be allocated between the deceased spouse's and the surviving spouse's estates. Generally, separate debts of either spouse are allocated to the debtor spouse's separate property, and, community property debts are allocated to the spouses' community property assets. In the absence of an agreement between the surviving spouse and the representative in the decedent's probate or trust administration, the following rules apply .

If the debt is one spouse's secured separate debt, then the secured debt is allocated against the equity in the asset that is securing the debt. If insufficient, then the excess debt is allocated against the debtor spouse's other separate property.

For example, if one spouse owns real property with a mortgage from before the marriage, then the mortgage is a separate debt that is secured against the spouse's separate property. If the equity is insufficient to repay the mortgage, then the excess debt would be allocated to the debtor spouse's other separate property (e.g., the debtor spouse's assets purchased prior to marriage and gifts received while married).

If the debt is one spouse's unsecured separate debt, then the unsecured debt is allocated against the debtor spouse's separate property generally. If there is insufficient separate property, then the unpaid debt is allocated against the debtor spouse's one-half share of any community property. If also insufficient, then it is allocated to the nondebtor spouse's one-half share of the community property.

For example, if a spouse owes credit card debt incurred prior to marriage, then it is first allocable to the spouse's separate property assets. Any excess debt is allocable to the debtor spouse's onehalf interest in the community property.

If a community property debt is secured then the secured debt is allocated against the equity in the community property asset. Any excess debt is allocated against the married couple's other community property assets.

For example, if a married couple purchased a residence, the mortgage is a community property debt secured against a community property asset. If the equity is insufficient to repay the mortgage, then the excess debt is allocated to other community property, e.g., bank and investment accounts funded with marital earnings.

If a community property debt is unsecured then it is allocated against community property assets generally. Any excess debt is allocated equally between the spouses' own separate property assets. If necessary, the separate property of one spouse will pay more than onehalf.

For example, if the couple owes credit card debt incurred while married then it is allocated against the couple's community property assets generally, such as accumulated marital earnings.

Lastly, when necessary, a court petition is used to approve the allocation of debts between a deceased and surviving spouse's estates. The foregoing brief discussion is not legal advice. Consult a qualified attorney or financial advisor for guidance.