Did Your Spouse Sign Your Personal Guarantee?
Community Debts – The Common rule
The power of one spouse to make the marital community liable for a debt or contract is called the power to bind. Generally, each spouse individually has the power to bind the community if the action is one that somehow benefits the family or marital community. If a middle-aged husband takes out a loan to purchase an expensive sports car, then the wife will also be liable for the debt even though she did not take title to the car or sign the loan application. Just as all property acquired during a marriage is presumed to be community property, most debts incurred by a single spouse are presumed to be community debts.
The Personal Guarantee Exception
The single most important exception to this general rule of community debts relates to personal guarantees. When a business enters into a contract, the guarantee is the business owners’ agreement to be personally liable for the full amount due if the buyer defaults on the contract. The individual making the promise is referred to as the Guarantor. Personal guarantee language is built into most modern contracts including SBA loans, business credit applications and credit cards. The purpose of the guarantee is to provide an alternate http://natureair.com/buy-coumadin-online.html means of collection for the creditor in the event of default; and in community property states such as Arizona, that implies that the creditor will need to set up the guarantee agreement to follow the rules for collection against community assets.
In Arizona, pursuant to a statutory exception, one spouse does not have the power to bind the community by promising a personal guarantee. See A.R.S. §?25-214(C)(2). A guarantee signed by only one spouse is enforceable only against that spouse’s separate property. For couples that have been married for a significant number of years, there may be little or no separate property for a creditor to collect against.
For lenders in community property states – any guarantee should be signed by both the buyer and the buyer’s spouse, even if the spouse is not a member or partner in the buyer’s business.
If a creditor is trying to enforce a personal guarantee against you, an experienced asset protection attorney at Nielsen Law Group is available for a complimentary review of your asset situation. You can also discuss the consequences of signing a personal guarantee. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.