Creditors from other states who obtain judgments against Arizona residents may face difficulties in collecting their debts. Arizona’s community property laws place some limitations on collecting from a married couple’s community assets. As we discussed in our previous blog post, under A.R.S. § 25–214(C)(2), both spouses must execute a personal guaranty to bind the marital community. In one of the more recent Arizona Court of Appeals decisions, the creditor obtained a judgment in Minnesota against an Arizona resident based on a guaranty that the husband signed but his wife did not. See, Rackmaster v. Maderia,193 P.3d 314 (Ariz. Ct. App. 2008). The Court held that under the circumstances, the community’s bank account was not subject to garnishment absent the wife’s signature on the underlying guaranty.
In determining the collectability of a foreign judgment in Arizona, several principles of law can come into play: (1) the requirement, under the Full Faith and Credit Clause of the United States Constitution, that a foreign judgment from a non-community property state be given effect in Arizona, (2) the corresponding provision of Arizona law imposing liability on a married couple’s community property for a spouse’s debts, incurred outside of Arizona, that would have been community debts if incurred in Arizona, (3) the procedural requirement, under Arizona law, that both spouses be named in a lawsuit against the community, and (4) the substantive prohibition, under Arizona law, against one spouse alone binding the community to guaranty liability. Unfortunately, there is no simple rule to apply universally to determine the effectiveness of a foreign judgment against the marital community. Factors need to be evaluated and applied.
One of the factors to consider includes whether the underlying debt was incurred while the members of the marital community were residents of Arizona. Courts may also focus on whether the defense sought by the debtor being sued is procedural or substantive. The ultimate resolution in cases like these involves the balancing of conflicting public policies: protecting Arizona’s unique community property laws while avoiding the classification of Arizona as a debtor’s haven.
Given the complexity of issues surrounding domestication of a foreign judgment in Arizona, it is not surprising that confusion exists in this area of law. The rulings by Arizona Courts seem to point in multiple directions. The facts of each situation need to be analyzed in detail. Whether you are a debtor looking to protect your assets or an out-of-state creditor trying to enforce a judgment against an Arizona debtor, it is important to seek legal advice from counsel experienced in this complicated area of law.