[WSBAPT] Deceased spouse's debt - separate or community?

Tue Jan 30 14:00:13 PST 2018

Sounds like you're reading the right statutes--RCW 26.16.030<http://app.leg.wa.gov/RCW/default.aspx?cite=26.16.030> and RCW 26.16.205<http://app.leg.wa.gov/RCW/default.aspx?cite=26.16.205>. The rules differ once a spouse has died, in terms of which assets are used to pay off debts, but the rules to determine if the debt is separate or community in the first place are the same.

All the debt that you are mentioning sounds like contract debt (as opposed to tort or statutory liability), so I'll assume this is all voluntarily assumed contract debt. Different rules apply on tort and other non-contract debt, rules that generally make the community liable more often.

First off, contract debt is always the separate liability of the acting spouse--deceased husband.

It is also a community liability if the debt was for a "community purpose" or "with expectation of a community benefit," regardless of whether or not the other spouse knows about the debt, and regardless of whether or not the other spouse objects to it. In this respect, each spouse can cause community liability unilaterally, even over the other spouse's objection. See Sunkidd Venture, Inc. v. Snyder-Entel, 87 Wn.App. 211, 215, 914 P.2d 16 (1997); Oil Heat Co. of Port Angeles v. Sweeney, 26 Wn.App. 351, 613 P.2d 169 (1980); In re Marusic, 139 B.R. 727, 731-32 (1992). (The case law is pulled from WSBA Community Property Deskbook Sec. 6.2(1) (4th ed. 2014).) The transaction need not actually cause community benefit, so long as it was done with the expectation of community benefit. Byers v. Moore, 45 Wn.2d 68, 272 P.2d 626 (1954); Way v. Lyric Theater Co., 79 Wn. 275, 140 P. 320 (1914).

I would scrutinize the credit card bill to find out exactly what was being paid for, and argue strenuously for non-community purposes as much as possible. I'd argue that the secret line of credit was used for separate purposes. You're battling against a presumption of community benefit, so any evidence that the money never was used to benefit the community would be helpful to rebut. Generally the loan is presumed to be for community benefit and clear and convincing evidence is needed to rebut. Bierer v. Blurock, 9 Wn. 63, 36 P. 975 (1894); Morrison v. Dungan, 182 Wn. 503, 47 P.2d 988 (1935); Byrne v. Sanders, 17 Wn.2d 56, 134 P.2d 941 (1943).

Third, if the debt is a "family expense" under RCW 26.16.205, it imposes separate liability on the non-acting spouse as well as the acting spouse and the community. That has been found to include medical expenses. Parsons v. Tracy, 127 Wn. 218, 220 P. 813 (1923) (last illness); Roberts v. Warness, 165 Wn. 266, 5 P.2d 495 (1931) (medical and surgical care). Note that technically last illness expenses are high-priority debt to a probate and should be paid off by the decedent's separate assets if available.

What assets are subject to such debt? See abatement statutes, Ch. 11.10 RCW<http://app.leg.wa.gov/RCW/default.aspx?cite=11.10&full=true>, especially RCW 11.10.030 which knocks the pre-death rules for liability into a cocked hat. Basically, any debt that is community gets paid from community assets first, even if it is also the separate liability of the decedent. RCW 11.10.030(3)<http://app.leg.wa.gov/RCW/default.aspx?cite=11.10&full=true#11.10.030>. So the main goal is to characterize as many debts as solely decedent's separate debt as possible, to get under RCW 11.10.030(2). That at least limits the damage to half the value of community property, rather than all of it.

If it's a community liability, the entirety of community assets are subject to the debt. Note that the probate of the first spouse to die has in rem jurisdiction over the entirety of community assets, not just the decedent's one half. The death of a spouse terminates the marital relationship and the "marital community." Bank of Montreal v. Buchanan, 32 Wn. 480, 73 P. 482 (1903); see also Washington State Bar Assn. Community Property Deskbook (4th ed. 2014) (hereinafter "CP Deskbook"), Sec. 4.11. At death of the first spouse, the community "ceases to exist." Sutton v. Hirvonen, 113 Wn.2d 1, 6, 775 P.2d 448 (1989). The first deceased spouse's Estate accordingly has jurisdiction over all community property and community liability, not just the decedent's half, in order to dispose of all community matters. Ruth v. Dight, 75 Wn.2d 660, 670, 453 P.2d 631 (1969) (claim against the community cannot be pursued against surviving spouse if not also properly brought against the deceased spouse's estate); Gilliam v. City of Centralia, 14 Wn.2d 523, 531, 128 P.2d 661 (1942) (deceased spouse's Personal Representative, not the surviving spouse, has authority to pursue a community claim); Magee v. Big Bend Land Co., 51 Wash. 406, 408, 99 P. 16 (1909) (administration of first spouse's estate had jurisdiction and authority to sell the entire community real property). See also CP Deskbook, Sec. 4.13.

In your case, I'd consider the following, some of which might or might not be worthwhile:

1. Characterize maximum possible amount of debt as separate contract liability of the decedent, consistent with CR 11.
2. Enforce the creditor claim process rules to their draconian limits to give minimum possible window of notice to ascertainable creditors. Reject every claim that doesn't cross every t and dot every i in term of filing and service procedures.
3. Apply for maximum family support for the surviving spouse under Ch. 11.54 RCW, and argue also for an increased award under RCW 11.54.040 based on the likelihood that the surviving spouse would lose her home of X years and have insufficient resources to buy a new home and insufficient income to maintain a comparable household by renting. I'd argue especially that protection of the surviving spouse for family support should prioritize protection of community assets against RCW 11.10.030(2). Give notice to all remaining creditors of the hearing, and if they don't object, you can get best possible order in front of the commissioner at the hearing.
4. Keep tabs on your creditor totals and asset totals after subtracting property protected by the family support award. If you can get to insolvency with respect to the rest, the debts will abate ratably.
5. Evaluate the ordinary statutes of limitations even on the valid creditor claims, to see if any of them might run. Remember that the S/L on the underlying cause of action continues to run even on a filed creditor claim, so the creditor still has to file a suit in time in order to preserve the claim. Otherwise the claim can be rejected after the S/L runs.

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1417 31st Ave South
Seattle WA  98144-3909
phone 206-625-0092
fax 206-625-9040

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Dalynne Singleton
Sent: Monday, January 29, 2018 8:21 PM
To: WSBA Probate & Trust Listserv
Subject: [WSBAPT] Deceased spouse's debt - separate or community?

I have an estate opened for a death of husband.  We have published the Notice to Creditors and it has been shocking to the widow (Mrs.) of the creditor's claims for debts her husband had that she did not know about.  I am trying to make a determination on separate debt v. community debt.  I have done some research and here is what I have concluded - correct?

  1.  If debt was incurred during marriage by the husband w/o the consent or any part of the debt for the wife, it is his separate debt.
  2.  If debt was incurred during marriage as in #1, but debt was accumulated to the benefit of the community, it is community debt.  Example, bought a car and the car is now with the wife after his death.
  3.  If debt was incurred as a "family expense", then it is enforced against the separate property of decedent - does this include medical expenses of the husband?

Quite a bit of the bills are for credit cards and medical treatment of the husband prior to death (unrelated to death).
One if for a personal non-secured loan for which the wife has no idea what the money was used for.
There is a community property home with no mortgage.  Very little cash and no pension.

The wife's income will not support paying all of this debt and she will be forced to sell her home.

Thanks.

Dalynne Singleton

Gourley Law Group
Snohomish Escrow
The Exchange Connection
1002 10th Street / PO Box 1091
Snohomish, WA 98291

360.568.5065
360.329.4079
360.568.8092  fax
dalynne at glgmail.com<mailto:dalynne at glgmail.com>

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