By Cliff Gravett
From time to time our firm assists individuals with charting the difficult course of divorce proceedings. One of the statements I often hear from the spouse I am representing is that the other spouse has a credit card, it’s in his or her own name, and my client doesn’t really care about it because they each take care of their own debts. My client is always very surprised when I explain to him or her that since Nevada is a community property state, he or her may well be ordered to pay a portion of the other spouse’s debts.
What is a “community property” state? There are nine states in the country which, rather than adopting the English system regarding marital property whereby each spouse continues to own his or her own assets, adopted the Spanish system whereby all of the property (and debts) acquired during the marriage are jointly owned. This means that property and debt acquired during marriage is considered equally owned by husband and wife, regardless of who earned (or spent, as the case may be) the money to acquire it.
As with most general rules, the rule of community property also has important exceptions. For instance, property that a spouse owned before the marriage is that spouse’s “separate property.” After the marriage, it will continue to be owned solely by that spouse. Likewise, debts incurred prior to marriage are the sole responsibility of the spouse that incurred them. Remember that bright red motorcycle you bought on a whim with the Visa right before your marriage? Well, your spouse isn’t on the hook for it; but the Corvette you financed right after the marriage? Yeah, you’re both on the hook for that one.
It is important to realize that just because something has a separate property characteristic does not mean it will stay that way. For example, if you inherit money during your marriage and deposit it into a joint account with your spouse, then the presumption is that your inheritance money was converted to community property by being commingled with your marital funds. This is because, after a few months of paying bills, it may be impossible to determine whether the money remaining in the account is your inheritance money or marital funds. Generally, when separate property is mixed with martial property and can no longer be distinguished, it will be considered community property and subject to the creditors of either spouse. And, because one pile of money is completely fungible (or indistinguishable) from another pile of money, once you mix them together, a judge is not going to have any inclination to try and separate the two piles.
So, what is the takeaway? If you are in the unfortunate position of considering divorce, keep in mind that all community debts will need to be divided and provided for. Second, if you have separate property with any significant value, you may want to consider various means of ensuring that your separate property is protected from collections efforts arising from your spouse’s separate debts. A competent attorney can assist you in either of these matters.
Clifford Gravett is a local attorney with the Virgin Valley law firm of Bingham Snow & Caldwell located in Mesquite and serves clients in Nevada, Arizona, and Utah (702-346-7300 / www.binghamsnow.com)