Community Liability for a Debt Guaranteed by the Other Spouse
Posted on : December 14, 2016, By: Christopher Hildebrand
Community Liability for a Debt Guaranteed by the Other Spouse
When a marriage ends in Arizona, both the community assets and the community debts are divided between the spouses. As part of the process, a court must determine which debts belong to each individual spouse.
In Vance-Koepnick v. Koepnick, 3 P.3d 1082 (1999), the appellate court considered a promissory note signed only by one spouse.
Facts and Procedure
Mrs. Vance-Koepnick and Mr. Koepnick married in February 1996. Before the marriage, Mr. Koepnick owned a corporate business called Phoenix Biomedical. During the marriage, the business had problems and Mr. Koepnick could not draw a salary from it.
Community Liability for a Debt Guaranteed by the Other Spouse.
Six months into the marriage, the corporation borrowed $40,000 from an individual to keep the business going. Mr. Koepnick signed a promissory note on behalf of the corporation and personally guaranteed it. Mrs. Vance-Koepnick did not sign it.
In the divorce case, the judge ruled that the loan was Mr. Koepnick’s separate debt and not a community debt. From that, Mr. Koepnick appealed.
Both Spouses Must Sign Guarantees to Bind the Community
Mr. Koepnick argued on appeal that the loan guarantee was a community debt. He relies on Hofmann Co. v. Meisner, 497 P.2d 83 (1972). In that case, a husband personally guaranteed a corporate debt and the creditor sued both spouses on the guarantee. The creditor claimed that the marital community was liable. It argued that the husband was acting for the benefit of the community when he signed the guarantee. The court in that case agreed and allowed a recovery from community assets.
Since that holding, however, the legislature revised the statutes. It removed the language making a husband the sole manager of the marital community. The new law provides that each spouse can manage community property or bind the community in most cases. However, it specifically states that both spouses must join in any community guarantees.
This means that a community is not bound by a guarantee signed by only one spouse. That is the case even when the guarantee is for a business that benefitted the marital community.
The Statute Applies to Disputes between Divorcing Spouses
Mr. Koepnick next argued that the statute about community guarantees applies only to creditors. However, the Court of Appeals rejected this argument, ruling that it also applies to divorcing spouses.
The Court noted that the statute is part of a section dealing with marital and domestic relations. These statutes are intended to protect one spouse against obligations undertaken by the other spouse. That purpose would be frustrated if Mr. Koepnick could charge Mrs. Vance-Koepnick’s interest in the community with debts he alone guaranteed.
Jennifer, thank you for being my attorney. I could not have been more pleased with the outcome of my family court hearing. Everything you have done for me throughout this case reflects in the final ruling of the judge. You helped me keep my head together and taught me a lot about myself as a person. I learned so much about my life from observing and listening to you. I will take all the advice you gave me to continue taking responsibility for my choices, continue to put the kids' needs first, and always stay truthful. Your diligence, dedication, and persistence in my case made what seemed impossible, possible. You are a wonderful person and an amazing attorney and I am stronger and more confident because of you.
I just want to again thank the Firm for working with me all that it has. I could not have done anything without everyone's assistance. You, Chris and Stacey have been and continue to provide me with compassion and hard work towards my case. Also a very special thanks to Kip for taking my case in the beginning. Also continued support from him and his dedication to providing me with his expertise in this matter.
After interviewing several law firms, I came across Jennifer Shick, and her firm, who I hired to represent me for my Family Court case. Jennifer has extensive knowledge of the law and is determined to bring the truth to every issue involved within the case. Throughout my case, Jennifer was prepared meticulously as well as went above and beyond all of my expectations. Even when the other party tried to differ from the truth, lie to the Judge, and turn situations around, Jennifer remained attentive and provided substantial evidence to show the judge the facts as well as the proof to support what was the best interests of my children. Additionally, Jennifer helped me endure many difficult experiences, situations and inspired me to remain positive throughout the entirety of my case. Her kindness, compassion, and professionalism helped me through very difficult times and made the process feel a thousand times lighter on my shoulders. She truly has my children and my best interest at heart and I trust her perspective as well as her honesty on each and every aspect of my case. She lessened the burden on my shoulders and even when I felt like the case was not going to go in my favor, Jennifer was open-minded and reassured me that the Judge would, in fact, see the truth, which he did and the case went in my favor. After nine months of court, everything finally came together. I cannot declare how much Jennifer has been an outstanding attorney. She addressed each and every issue with diligence, she cares about her clients and their families. Jennifer genuinely cares about her clients and her dedication to the details of the case was remarkable. Overall, I am extremely pleased with Jennifer’s services and I am truly thankful that I was so blessed to have her represent my children and me. I highly recommend Jennifer as one of the best attorneys in Arizona and if the situation ever arises, I will definitely have her represent my children and me again.
Dear Stacey and Kip, How can I ever thank you enough for helping me through the most difficult time in my life? I couldn't put into words my heartfelt gratefulness. You both were so compassionate and professional at every given moment throughout this process with me. I thank you from the bottom of my heart. You helped me to regain my freedom.
I was a client of Attorney Kevin Park for the dissolution of a divorce in 2016. And since I had never had the need to hire an attorney before for any purpose, I was somewhat apprehensive of the process. But the very calm and professional demeanor of Mr. Park eased my fears. He adeptly answered all my questions and I clearly knew the process and what to expect. And the skilled manner he communicated with opposing counsel was perfect. When it came down to negotiating with my spouse’s counsel, I knew I had selected the best attorney for my situation. What I noticed and appreciated was that he was using just the right amount of pressure with opposing counsel as was necessary. If you find yourself in this situation, you will want a seasoned professional like Mr. Park on your side. I'm very grateful that he was my attorney and not the opposition!
Chris is a smart and aggressive attorney for his clients. Chris always tries to reach a fair settlement of his cases. I’ve represented clients when Chris was the opposing counsel and while he is professional and amicable to work with, he does not back off on what he needs to do for his client
Kevin Park of Arizona Estate Planning Attorneys was just what I needed for my divorce. He was very approachable and personable. He was quick to recognize what I needed and provided it quickly and efficiently. I hope to never need a divorce lawyer again, but if I know anyone else who does, I will definitely recommend Kevin.
I feel that Tracey Van Wickler is certainly one of the best family lawyers around. She is logical, intelligent, and truly cares. Tracey always does what is in the clients best interest, does it well, timely and with integrity. She is good at keeping her clients informed as to what is going on and clear in her communication both written and verbally. I have recommended Tracey to other people and will continue to recommend her. I recommended Tracey to someone who was having issues with their ex-wife and his response was, “I know how good she is because I went up against her and she ate me for lunch”. This same person was so impressed with her, he even recommended her to someone else, WOW, that is impressive! I am exceptionally happy with her attention to detail, her ability to explain things in ways that are easy to understand, as well as her ability to keep everyone focused on the most important things. I would recommend Tracey to anyone who may be in need of her services.
I retained Hildebrand Law after interview a number of firms in the valley. Working with Michael C. was incredibly easy and informative. My case progressed in such a organized and thought out way to ensure that my needs were met. Michael was incredibly proactive and was able to see far ahead into my case to steer clear of some roadblocks. I would not hesitate to recommend Michael Clancy, and Hildebrand Law in general, to anyone.
I have worked with Hildebrand law for about 8 years. They are always ready to serve, provide guidance and give you a few options. When they provide you options they also take the time to walk you through the pros and cons of each and give you a recommendation of what is best, but will listen to you and support whatever course you choose after making and educated choice. I’d recommend them to my closest friends and feel Chris Hildebrand is now a friend to me.
Despite the unfortunate situation I found myself in, Chris Hildebrand @ Hildebrand Law helped me maneuver every step with professionalism, expertise, and even a sensitivity that was an added bonus.Chris and his staff helped me even when I didn't know I needed the help. In other words. . . they made sure we did not leave anything undone. And in the rare instance we needed the expertise of another professional, Chris knew exactly who to recommend.Chris also knew, because of his experience, what to anticipate down the road of litigation. That meant we were better prepared to meet the challenges head on, which lead to a more equitable and fair outcome. I appreciated that Chris did his best to meet my every need in a timely fashion, even if I had a simple question that required only a phone call or e-mail or if we needed to talk face-to-face.I highly recommend Chris Hildebrand @ Hildebrand Law, PC.
During the marriage, lawsuits were filed against the corporation and Mr. Koepnick personally. He hired a law firm to defend the suits and signed a fee agreement. Mrs. Vance-Koepnick did not know about the agreement and did not sign it. Mr. Koepnick argued that the legal fee debt is a community debt.
The fee agreement stated:
As we have discussed, Phoenix Biomedical, Inc. (dba Phoenix Keratek, Inc.), and you personally, agree to be responsible, jointly and severally, for payment of all attorney’s fees and disbursements incurred with Fennemore Craig. Your ownership of stock in Phoenix Keratek and PBLC Company (PBLC being the holder of the patents) predates your February 1996 marriage toMrs. Vance-Koepnick. You own 80% of PBLC Company. You have maintained your personal assets as separate property, except only for 3% of the stock in Phoenix Keretek which you have given to your wife Mrs. Vance-Koepnick. She has no interest in PBLC Company. You do not intend to and will not give Mrs. Vance-Koepnick any interest in PBLC Company or any additional interest in Phoenix Keratek. She does have her own separate assets from a prior marriage. Your signature will bind your separate assets as well as your share of community property assets.
Community Liability for a Debt Guaranteed by the Other Spouse.
The trial judge ruled that this obligation was the sole responsibility of the husband. The Court of Appeals said that the same analysis applied to the debt as to the guarantee.
The debt agreement also contained a provision for attorney fees in case of litigation brought against him personally .Mr. Koepnick claimed that his defense benefitted the community. However, the Court of Appeals upheld the trial court’s decision that the debt was solely Mr. Koepnick’s. He did not divide up the fees between work done for the corporation and work done on his own behalf.
In addition, the Court assumed that the lawsuit arose out of the facts that gave rise to the suits against the corporation. The legal agreement showed the parties’ clear intent to preserve Mr. Koepnick’s separate interest in the corporation. Under these circumstances, the Court found it fair to allocate the debt incurred to Mr. Koepnick alone.
The orders of the trial court assigning liability for the debt and the legal fees to the husband are affirmed.
As Seen on CBS News, ABC News, NBC News, and Fox News
Arizona Estate Planning Attorneys, PC As Seen in the News.