Common-Law Property States: When Can a Creditor Take Property?

In a state that follows "common-law" or "equitable distribution" rules, debts incurred by one spouse are that spouse's debts alone, and income earned by one spouse does not automatically become jointly owned.

Common-Law Property States

41 states follow common-law property rules, plus the District of Columbia: Alabama, Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia, and Wyoming.

When Are You Responsible for Your Spouse's Debts in a "Common-Law" State?

In a common-law state, debts are owed by both spouses only if the debt benefits the marriage (for example, the debt was for food, clothing, childcare, shelter, or necessary household items) or the debt was jointly undertaken. A debt was jointly undertaken, for example, in any of the following situations:

• Both spouses signed a contract requiring them to make payments on the debt.
• Both spouses' names were on an account or title to the property.
• A creditor used both spouses' credit information before making the sale or loan.

The same rules apply after permanent separation but before divorce.

All other debts are considered separate debts of the spouse, including business debts from one spouse's business or car loans for cars whose titles are in the spouse's name.

How Are Income and Property Shared Between Spouses?

Generally, in most common-law states, income earned by one spouse during the marriage belongs to that spouse alone if it is kept separate. Any property bought with separate income or funds during the marriage is also separate (unless the property title is put under both spouses' names). In addition, gifts and inheritances received by one spouse—and property owned by one spouse before marriage—are the spouse's separate property (as long as they are kept separate).

However, if income earned by one spouse is put into a joint bank account, that income or property becomes joint property. If joint funds are used to buy property, the property is also owned jointly (unless the title is taken in one spouse's name only). Jointly owned property can include equity in a jointly owned house, household goods, jointly owned vehicles, and jointly owned bank accounts, retirement plans, and stocks or mutual funds.

As you may have guessed, for property with a title document, such as real estate and vehicles, whose name is on the title indicates who owns the property in common-law property states. For instance, if a car is in only one spouse's name, it's considered that spouse's separate property. If a house is in both spouses' names, the house is joint property, even if one spouse doesn't contribute anything toward the mortgage payments.

What Property Can a Creditor Take to Pay Debts in a Common-Law State?

In a common-law property state, creditors of one spouse can go after the income or property of the other spouse—or joint property—only if the debt was incurred for joint purchases or purchases made for family necessities.

In some common-law states, a creditor can also seize joint property to pay the separate debts of one spouse (even if the debt is not family-related), but in most states, a creditor can take only half of the money in a joint account.

In about half of the common-law property states, a creditor can't go after certain joint property to pay the separate debts of one spouse: If a couple holds property in "tenancy by the entirety," a creditor can go after the property to pay only joint debts, not separate debts of either spouse. And in some states, such as Florida, most joint property is automatically considered to be held in tenancy by the entirety and so is immune from being taken to pay one spouse's separate debt.

As to a spouse's separate property, creditors of one spouse can't legally reach the other spouse's separate money, property, or wages to repay the first spouse's separate debt.

Ask a Local Lawyer About Your State's Rules

Talk to a debt collection or bankruptcy lawyer in your state for further information on whether a creditor can seize your joint property to pay the separate debts of one spouse.

Your Spouse Should Not Guarantee Your Business Debts

It follows that if you live in a common-law state and you own a business that your spouse is not involved with, you don't want your spouse to personally guarantee any of your business debts. Unless your spouse cosigns a loan or personal guarantee, your spouse won't be liable for your business debts—if you keep your money and property separate.

How Does Bankruptcy Work in Marriage?

In a common-law property state, if only one spouse files for Chapter 7 bankruptcy, only that spouse's joint and separate debts would be discharged. The other spouse's separate debts would not be discharged.

Further Help With Debts and Marriage

For more information on sorting out personal debt and marital property, see Solve Your Money Troubles: Debt, Credit and Bankruptcy (Nolo).