In Arizona, when an individual signs a contract, that person becomes personally liable to perform the obligations created by the contract. There are many different types of contracts, for example, retail installment contracts, personal guarantees, leases, or credit agreements, just to name a few. A breach of the contract may in all likelihood result in a lawsuit.
There are different factors that should go into filing a lawsuit, and defending a lawsuit. One of the practical factors is, if successful, will the creditor collect the damages arising from the breach of the contract? Additional factors include: was the person married at the time the contract was signed, and what type of contract was signed. The equation gets a bit more complicated if the person was married when the contract was signed and is now divorced, or if the contract was signed outside of Arizona. For single persons who sign the contact in Arizona, the answer to the question is easy; all non-exempt assets of the debtor are available for repayment.
For married couples, it is important to recognize that Arizona is a community property state. In Arizona a spouse can hold both separate property and community property. There is a presumption that the marital community is liable for the obligations incurred by each spouse during the marriage. When both spouses sign the contract, the law gets clearer. However, if only one spouse signs the contract, there are exceptions to the general rule that the community property is liable.
Arizona Revised Statute § 25-215 defines when community property or separate property can be used to satisfy community and separate property debts. A.R.S. § 25-215(A) states: Separate property of a spouse shall not be liable for the separate debts or obligations of the other spouse, absent agreement of the property owner to the contrary.
A.R.S. § 25-215(B) states: The community property is liable for the premarital separate debts or other liabilities of a spouse, incurred after September 1, 1973, but only to the extent of the value of that spouse’s contribution to the community property which would have been such spouse’s separate property if single.
A.R.S. § 25-215(C) states: The community property is liable for a spouse’s debts incurred outside of this state during the marriage which would have been community debts if incurred in this state.
A.R.S. § 25-215(D) states: Except as prohibited in section 25-214, either spouse may contract debts and otherwise act for the benefit of the community. In an action on such a debt or obligation the spouses shall be sued jointly and the debt or obligation shall be satisfied: first, from the community property, and second, from the separate property of the spouse contracting the debt or obligation.
The law appears to be fairly straightforward. There are issues that must be analyzed whether you are a creditor or a debtor. For example, if only one spouse guarantees a debt incurred during the marriage in Arizona, the creditor’s enforcement rights are limited. It may be the creditor is entitled to get a judgment, but that judgment is only enforceable against the separate property of the spouse that guaranteed the debt.
If the debtor has no separate property assets, the creditor will have to wait until such time separate property assets are available. When will separate property assets be available? Separate property assets may never be available. Or separate property assets may become available upon the death of one of the spouses, or, upon the dissolution of the marriage. The message should be clear. There is an art to litigation, hire an experienced attorney whether you are a creditor or a debtor.
The attorneys at Windtberg & Zdancewicz, PLC provide clients with experienced legal representation in all litigation and bankruptcy matters. We are experienced in creditor’s rights prosecuting and defending garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.