Death and Debts

Community property laws are complicated. There’s Separate Property, Sole Management Community Property (aka “Special Community Property”) and Joint Management Community Property. Debts trail along with the same classifications.

Truthfully, most married couples don’t care about the technicalities. They buy into the assumption that everything is community: debts, assets, earnings.

That works great until one of them dies. Then, suddenly, the classifications become vitally important to the surviving spouse, the beneficiaries (or heirs), and the creditors.

Death means that the community estate is immediately cut in half.  Which half is responsible for paying the debts that were outstanding when the first spouse died? (Hint: in 2013, the Texas Supreme Court held that there is no such thing as a “community debt.” Marriage alone does not create joint and several liability for debts.)

The answer requires an analysis of each individual debt. Whose debt was it? Was it the deceased spouse, the surviving spouse, or both? Was it secured by any assets and, if so, are the assets in the probate estate or held by the surviving spouse? What was the type of debt – was it a “necessity” like a medical bill? Was it incurred by one spouse acting as an agent for the other spouse (possibly under a Power of Attorney)? Was it incurred as a tort or a contract?

The answer will determine which spouse was liable for the debt, and which property should be used, first, to pay it. It will also determine if the debt has to be paid at all.

All of this has to be factored into the probate framework. The surviving spouse is entitled to an allowance and exemptions. Debts against the deceased spouse’s estate become Claims that are ranked. If the deceased spouse had a Will, then it may dictate the estate administrator’s authority to assume possession and authorize payment out of community property.

Facing a probate situation?

Hammerle Finley Law Firm. Give us a call. We can help.

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The information contained in this article is general information only and does not constitute legal advice.