In our previous blog post, we discussed how Arizona’s community property laws allow for the collection of community assets for debts incurred or torts committed by either spouse during marriage, if the actions were for the benefit of the marital community. In this post, we discuss the exceptions to this general rule.
In most circumstances, either spouse can control and encumber the assets of the marital community. For example, A.R.S. § 25–214(B) states: “The spouses have equal management, control and disposition rights over their community property and have equal power to bind the community.” Furthermore, in most circumstances, A.R.S. § 25–215(D) allows one spouse to contract debts for the community. However, this statute limits this power by providing in part that: “Except as prohibited in § 25–214, either spouse may contract debts and otherwise act for the benefit of the community.” (emphasis added).
As might be expected, A.R.S. § 25–214 establishes several limitations upon the power of one spouse to bind the community. The following exceptions require joinder of both spouses (as evidenced by both of their signatures) in order to bind the community:
Any transaction for the acquisition, disposition or encumbrance of an interest in real property other than an unpatented mining claim or a lease of less than one year.
Any transaction of guaranty, indemnity or suretyship.
After service of a petition for dissolution of marriage, legal separation or annulment if the petition results in a decree.
Of particular importance here is the prohibition found in A.R.S. § 25–214(C)(2), which states that when the instrument is a guaranty, the community will be bound only upon the signatures of both spouses. A lender will want to make sure that both spouses have signed a personal guaranty of a loan. Conversely, a spouse who signs such a guaranty must be fully aware of the potential financial consequences, and may want to negotiate limitations on the scope of such a guaranty.