When most people hear about prenuptial agreements, they tend to think of an agreement that deals with how assets are to be divided in the event of divorce. This is correct, of course, but it is certainly not the whole picture, as prenuptial agreements can address a variety of other matters as well. One of the issues a prenup can and should address, but which is sometimes not thought about as much, is the division of debts in the event of divorce.
Under Arizona law, as in other states, there are default rules for how property and debt is handled in divorce and it is helpful to understand these when talking about prenuptial agreements. One of these rules is that the separate property of one spouse is not liable for the separate debts and obligations of the other spouse. Community property, however, can be liable for the premarital separate debts and liabilities of a spouse to the extent the indebted spouse contributed to community property. This, to be clear, is the amount of the community property which would have been the indebted spouse's separate property if he or she were single.
In addition, community property is liable for debts a spouse incurred in another state during the marriage. This rule applies only to debt which would have been community debt if it was incurred in the state of Arizona, since state laws differ.
State law also clarifies that either spouse may contract community debt, except under several specific circumstances, and that spouses can be jointly sued for these debts and obligations, which are to be satisfied first out of community property and then, if necessary, out of the separate property of the spouse which contracted the debt.
In our next post, we'll continue with this topic, specifically dealing with how prenuptial agreements can address the issue of debts.
Sources: Arizona State Legislature, "Liability of community property and separate property for community property and for community separate debts," Nov. 20, 2014.
Huffington Post, "What Your Divorce Attorney Won't Tell You About Marital Debt," Mar. 2, 2014.