1 Chapter 7 Yours, Mine, and Ours: Community Property and Bankruptcy Honorable Patricia C. Williams US Bankruptcy Court Eastern District of Washington Spokane, Washington Marc Barreca K & L Gates Seattle, Washington Table of Contents Introduction 7 1 I. Community Property Basics 7 1 II. Community Property and the Bankruptcy Estate 7 2 III. Discharge and Distribution Issues 7 2 A. Community Claims 7 3 B. Chapter 7 Individual Bankruptcy 7 3 C. Chapter 13 Bankruptcy 7 7 IV. Exemptions 7 8 V. Contract Obligations Versus Tort Liabilities: A State-by-State Approach 7 8 A. Idaho 7 8 B. Washington i
2 7 ii
3 Introduction Property rights are the cornerstone of any bankruptcy proceeding. In a Chapter 7, the debtor s property, with some exceptions, creates the bankruptcy estate. The estate, in turn, determines whether and how much a creditor is paid. In a chapter 13 case, this property will be used to determine what the creditors would have gotten in a chapter 7, making sure that the reorganization is fair to all creditors. 1 In other words, property creates either the bankruptcy estate or liquidation analysis that will determine the amount of repayment, if any, that creditors receive. Thus, the determination and classification of property and property rights is essential to a successful bankruptcy proceeding. The presence of state community property law can complicate a bankruptcy proceeding when a divorce proceeding is involved or if only one spouse files. Although most jurisdictions do not have community property laws, there are enough community property states to warrant the provisions dealing with community property found in the Bankruptcy Code. Currently, the nine community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2 In addition, Puerto Rico allows community property. As a result, bankruptcy courts in the First (Puerto Rico), Fifth (Louisiana and Texas), Seventh (Wisconsin), Ninth (Alaska, Arizona, California, Idaho, Nevada, Oregon, and Washington), and Tenth (New Mexico) Circuits have addressed community property issues. I. Community Property Basics The Bankruptcy Code does not define community property, but the traditional meaning property acquired during marriage that is equally owned by the couple is generally applied. 3 For the most part, state law controls the creation and definition of community property interests. As a result, state law determines whether a property interest is community or separate and whether the property is included in the bankruptcy estate. 4 Generally, in applying the community property definition in bankruptcy, property acquired during domicile in a community state during marriage is presumed community property, 5 while 1 Andrew Cosgrove, Breaking Up Is Hard to Do... Especially When Bankruptcy Is Involved: A Look at the Unfair Results That Occur When a Bankruptcy Intervenes in Domestic Relations Cases, 14 Am. Bankr. Inst. L. Rev. 235, (2006) La. L. Rev. 219, n.8 (2007); Tex. Const. Art. XVI, 15; Ariz. Rev. Stat. Ann (2007); Cal. Fam. Code 760 (West 2007); Idaho Code Ann (2007); La. Civ. Code Ann. Art (2007); Nev. Rev. Stat (2006); N.M. Stat (2007); Wash. Rev. Code (2007); Wis. Stat (2007)). 3 In re Robertson, 203 F.3d 855, 859 (5th Cir. 2000) (quoting 5 Collier on Bankruptcy , , n.l (15th ed. 1999)); Dumas v. Mantle (In re Mantle), 153 F.3d 1082, 1084 (9th Cir. 1998). 4 Dumas v. Mantle (In re Mantle), 153 F.3d 1082, 1084 (9th Cir. 1998). 5 La. Civ. Code Ann. Art. 2338; Cal. Fam. Code 760,
4 7 2 property acquired prior to marriage, by gift or inheritance, is treated as separate property. 6 II. Community Property and the Bankruptcy Estate Section 541(a)(2) states that community property that is included in the estate is based upon state law to determine if property is community or separate. 7 With certain limitations discussed herein, 541 effectively makes community property part of the bankruptcy estate, regardless of whether one or both of the spouses file. 8 Upon filing a bankruptcy petition, the following community property becomes property of the estate: (1) all interests of the debtor and the debtor s spouse in community property that is under the sole, equal, or joint management of the debtor, (2) all property that is liable for an allowable claim against the debtor, and (3) all property that is liable for allowable claims against both the debtor and the debtor s spouse. 9 III. Discharge and Distribution Issues The primary purpose of bankruptcy is giving the honest debtor or debtors a fresh start by discharging certain debts. Bankruptcy Code 524 includes community debts as obligations subject to discharge. Even though only one spouse files bankruptcy, the entire community may receive a discharge, 10 which means that the obligation is no longer enforceable against any community property or the separate property of the filing spouse. Section 524 grants protection to after-acquired community property so long as both spouses are innocent of any wrongdoing. 11 In other words, if all claims are dischargeable and both spouses are eligible for a discharge, even if only one spouse files, then community creditors are barred from asserting their claims against the couple s after-acquired community property. As a result, a debtor spouse s discharge prevents all collection of claims except against the nondebtor spouse s separate property, with state law determining whether the separate property of the nondebtor spouse is liable for community claims. If a creditor believes that grounds exist to render an obligation nondischargeable as to the nonfiling spouse, then the creditor must comply with 524(b) and Federal Rule of Bankruptcy Procedure 4004(a) and 4007(c). Even though the spouse who filed the bankruptcy proceed- 6 In re Mantle, 153 F.3d at 1085 (citing Hicks v. Hicks, 211 Cal. App. 2d 144, 151, 27 Cal Rptr. 307 (1962)); Cosgrove, supra note 1, at In re Robertson, 203 F.3d 855, (5th Cir. 2000). 8 Brown, infra note 9, at 13:10 (citing Norton Bankr. Law & Practice 51:8; Brown, Bankruptcy and Domestic Relations Manual 10:3 (2006 ed.); Collier on Bankruptcy (Matthew Bender, 15th ed. 1990)). 9 Hon. William Houston Brown, Chapter 13. The Debtor s Bankruptcy Estate, 2 The Law of Debtors and Creditors 13:10 (2007) (citing 11 U.S.C. 541(a)(2)). 10 Joan Henderson, For Better or For Worse: Liability of Community Property After Bankruptcy, 29 Idaho L. Rev. 893, 898 (1992) Collier on Bankruptcy .
5 ing may be innocent of any wrongdoing, a creditor must commence an adversary proceeding against the nonfiling spouse if the creditor has grounds to believe the nonfiling spouse has engaged in wrongdoing. A. Community Claims Bankruptcy Code 101(7) defines a community claim as a claim that arose before the commencement of the case concerning the debtor for which property of the kind specified in section 541(a)(2) of this title is liable, whether or not there is any such property at the time of the commencement of the case. 12 A community claim allows creditors of the debtor spouse and the nonfiling spouse to participate in a bankruptcy proceeding if the claim is enforceable against community property in the bankruptcy estate. Thus, a community creditor is any creditor that can satisfy any portion of its claim from the community property. However, a creditor has only one community claim when it holds a joint and several liability against both spouses. B. Chapter 7 Individual Bankruptcy One issue unique to community property is the effect of one spouse s misconduct on the dischargeability of debts. 1. Only One Spouse Files. In a Chapter 7, if only one spouse files, the community property still becomes part of the bankruptcy estate and, as a result, Section 363(h) does not apply to the nondebtor spouse. 13 Although Section 363(h) does not apply to community property, the nondebtor spouse does have a right of first refusal to purchase the property at the price at which such sale is to be consummated. 14 The nondebtor spouse must exercise his or her right by offering to purchase the property at the outside sale s price and before the outside sale is consummated. 15 a. Nonfiling Spouse Discharge. The primary reason a spouse would not join a bankruptcy proceeding is to protect his or her separate property. 16 The debtor spouse s filing ultimately affects the nondebtor spouse s credit and community interests, but nonparticipation will keep the nondebtor s separate property out of the bankruptcy estate. State law also determines whether the bankruptcy estate includes community property managed solely by the nonfiling spouse. b. Future Separate and Community Property. The separate property of the nonfiling debtor will remain subject to community U.S.C. 101 (7). 13 2C Bankr. Serv. L. Ed. 20:282 (2008). Generally, Section 363(h) allows the trustee or debtor in possession to sell the estate s interest and the interests of a coowner in property in which the debtor had, at the time of the commencement of the bankruptcy case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety. 9B Am. Jur. 2d Bankr (2008). Of course, the trustee must satisfy certain procedures, which are beyond the scope of this article. 14 9B Am. Jur. 2d Bankr (citing 11 U.S.C. 363(i)). 15 Id. 16 Henderson, supra note 10, at
6 claims as allowed by state law. The filing debtor receives a discharge from any liability, but the nonfiling debtor does not. The discharge renders the claim unenforceable against property of the estate, but the nonfiling debtor s separate property is not property of the estate. The discharged community property also receives in rem protection for future community property. 17 The nondebtor spouse s separate property does not benefit from the debtor spouse s discharge because the nondebtor spouse s separate property was not included in the bankruptcy estate. This is particularly significant in cases of postbankruptcy divorce or death. Without a personal discharge, [the nondebtor spouse s] protection depends on the status of the property. 18 Thus, the nondebtor spouse s prebankruptcy and postbankruptcy separate property will remain liable or obligated. In addition, if the marriage ends because of death or divorce, then the status of the community property will change to separate property. As a result, the previous community property will once again be liable or obligated because the nondebtor spouse never received a personal discharge and the property is now separate property of the nonfiling spouse. In essence, a community property discharge is only valid during the marriage. Once the marriage is over, 524(a)(3) protection no longer applies. Further, if a debt from a previous bankruptcy proceeding was denied discharge, then the debt may not be discharged in a future bankruptcy proceeding. 19 Thus, if the nondebtor s misconduct makes a community debt nondischargeable, the same community debt remains nondischargeable in a subsequent proceeding by the nondebtor. Future community property, however, is not subject to the nondischargeable debt so long as the guilty spouse is not guilty of further wrongdoing since the first bankruptcy. 20 c. The Innocent Spouse and Community Discharge. Certain conduct of the nondebtor spouse can drastically affect the community discharge. Both the debtor s and nondebtor spouse s conduct is relevant to the community, which is a single entity. Two types of conduct will affect the community discharge. First, there are certain types of community debts that are per se nondischargeable, such as child support or alimony. Future community property will remain liable for a nondebtor spouse s nondischargeable community debts, despite the innocent spouse s and the community s discharge. In other words, neither spouse can use bankruptcy to protect community property from nondischargeable debts. Second, there are certain types of behavior, such as fraud, that may operate to deny a debtor s discharge. If the nondebtor spouse has engaged in such behavior and a determination of nondischargeability is 17 Henderson, supra note 10, at Henderson, supra note 10, at U.S.C. 523(a)(10). 20 Henderson, supra note 10, at
7 made, the same rule that would deny the nondebtor spouse s discharge will also operate to deny the community discharge. In other words, a debtor spouse can receive a separate property discharge, but the nondebtor spouse s misconduct taints the community discharge. The innocent spouse s involvement in the conduct is irrelevant; the vicarious denial of discharge applies simply because the debtor s spouse is guilty. However, unlike other situations regarding per se nondischargeable obligations, an adversary proceeding must be timely brought against the nonfiling spouse in order to determine if the conduct has resulted in a debt not subject to discharge. In addition, if the innocent spouse files bankruptcy within eight years of the guilty spouse s denial of discharge, the innocent spouse will receive a discharge, but the community property will remain liable. 21 Even if the community does receive a discharge, any subsequent filing within eight years of the previous bankruptcy will not discharge claims otherwise enforceable against the community property acquired after the first bankruptcy. d. Marital Dissolution. Commencement of a bankruptcy after a marital dissolution normally does not involve any principles of community property law. If the dissolution divides the community property, the debtor has only separate property, which becomes property of the estate. If the dissolution does not divide the community property or the dissolution is not complete at the time of filing, then all community property and the entire debtor s separate property is property of the bankruptcy estate. A divorce that occurs postfiling but predischarge will not affect the bankruptcy estate. Bankruptcy Code 541(a) states that a bankruptcy petition filing creates the bankruptcy estate. 22 Thus, a postfiling divorce decree that divides nonexempt community property will not have an impact on the distribution of the bankruptcy estate. Although most bankruptcy estates will exhaust all nonexempt property to pay creditors, a solvent estate will reduce the amount of community property available for the state court to award to the nonfiling spouse. 23 In such circumstances, postdivorce, the nondebtor spouse s separate property, which may include former community property, will still be liable because the nondebtor spouse never received a personal discharge. 24 In sum, even though 541(a)(2) of the Bankruptcy Code includes community property and former community property that has not been years U.S.C. 727(a)(8). Note that BAPCPA extended the period from six to eight U.S.C. 541(a). 23 Henderson, supra note 10, at Henderson, supra note 10, at
8 7 6 partitioned as of the petition date, 25 former community property partitioned and reclassified as separate property prior to the filing will not be included in the debtor s estate Distributions on Claims. In a Chapter 7 proceeding, 726 applies to cases where the bankruptcy estate includes community property. That section separates the estate into subestates of community property and separate property. Essentially, a debtor s bankruptcy estate consists of separate and community property estate subestates. The separation should parallel the state law community property scheme. 27 The bankruptcy estate is subdivided into four subestates: (1) all community property specified in 541(a)(2), except (2) community property that is solely liable for the debts of the debtor; 28 (3) all other noncommunity property (i.e., separate property); and (4) any remaining assets. The order of distribution and payment of claims is determined by the various subestates: First, administrative expenses are paid equitably from both kinds of property; Second, community claims against the debtor or the debtor s spouse are paid from community property, except such as is liable solely for the debts of the debtor; Third, community claims against the debtor, to the extent not paid under the above provision, are paid from community property that is solely liable for the debts of the debtor; Fourth, to the extent that all claims against the debtor including community claims against the debtor are not paid under the above provisions, such claims shall be paid from property of the estate other than community property of the estate; Fifth, if any community claims against the debtor or the debtor s spouse remain unpaid, they are paid from whatever property remains in the estate In re Robertson, 203 F.3d at 861; Dumas v. Mantle (In re Mantle), 153 F.3d 1082, 1085 (9th Cir. 1998); McCoy v. Bank of America (In re McCoy), 111 B.R. 276 (9th Cir. BAP 1983); Miller v. Walpin (In re Miller), 167 B.R. 202 (Bankr. C.D. Cal. 1994); In re Hendrick, 45 B.R. 976, (Bankr. M.D. La. 1985). 26 In re Robertson, 203 F.3d at 861; Paderewski v. Barret (In re Paderewski), 564 F.2d 1353 (9th Cir. 1977); Keller v. Keller (In re Keller), 185 B.R. 796, 800 (9th Cir. BAP 1995); In re Stouder, 164 B.R. 59, 64 (E.D. La. 1994) Collier on Bankruptcy  (citing In re Hicks, 300 B.R. 372, 376 (Bankr. D.Idaho 2003), and Merlino v. Weinstein (In re Merlino), 62 B.R. 836 (Bankr. W.D. Wash. 1986)). 28 Subestate 2 is usually unfunded except in two circumstances. 6 Collier on Bankruptcy . First, where the state scheme insulates a community property business solely managed by the debtor. Id. Second, in Texas, where certain community property is under the sole management and control of one spouse... if the nondebtor [spouse] has no tort creditors. Id. 29 In re Robertson, 203 F.3d at 863 (citing 11 U.S.C. 726(c); H.R. Rep. No , at (1977); S. Rep. No , at (1978)).
9 In effect, 726(c) provides the procedure for distributing the community property estate created by 541(a). The case In re Martell 30 provides an example. Debtor filed for Chapter 7 bankruptcy in September 2004, and all of the listed debts were separate obligations incurred prior to marriage. 31 Debtor and her spouse filed a joint tax return for the 2004 tax year, which entitled them to a tax refund of $5, Trustee claimed $ as the amount that constituted property of the bankruptcy estate. 33 The nondebtor spouse paid most of the taxes because he earned approximately five times more than debtor did. 34 The court, applying Section 541 and Idaho state law, determined that the entire tax refund was community property and, therefore, the entire prorated amount was property of the bankruptcy estate. 35 The court then distributed the refund according to Section 726(c). First, the tax refund was used to pay administrative expenses. 36 The remaining portion was then applied to the creditor s community claims against either the debtor or the debtor s spouse. 37 Since, under Idaho law, community property could be used to pay premarital separate debts, the remaining portion of the tax refund was used to pay all of the debtor s separate obligations under Section 726(c). 38 C. Chapter 13 Bankruptcy Generally, a Chapter 13 discharge will prevent a community creditor from asserting a claim against after-acquired community property. 39 There are many similarities between a Chapter 13 and a Chapter 7 proceeding, at least in the context of community property. First, the distribution scheme for a Chapter 13 is the same as 726(c). Second, the Chapter 13 best interest test is the same as the Chapter 7 liquidity calculation, which determines whether a creditor would receive at least the same benefits in a Chapter 13. Third, both Chapter 7 and Chapter 13 will not discharge the community property in certain situations. 40 There is one primary difference. If a debtor spouse has received a Chapter 7 discharge within eight years, which bars him or her from obtaining a discharge in another Chapter 7, 41 the other spouse may file B.R. 233 (Bankr. D. Idaho 2005). 31 Id. at Id. 33 Id. 34 Id. 35 Id. at Id. at Id. 38 Id Collier on Bankruptcy  U.S.C. 524(b)(2) U.S.C. 727(a)(8). 7 7
10 a Chapter 13 petition so long as neither spouse was denied a discharge within the past six years. 42 IV. Exemptions 7 8 Section 522(b) allows an individual debtor to exempt certain property. State law determines the exemptions, and community property law will determine whether one spouse may assert community exemptions on behalf of the community, even if the other spouse has not filed bankruptcy. 43 When a debtor spouse files an individual bankruptcy petition that the other spouse does not join, the debtor spouse has the sole right to claim exemptions in the community property that is included in the bankruptcy estate. 44 Although a nondebtor spouse can declare some exemptions as a dependent of the debtor spouse, the nondebtor spouse s exemptions cannot supplement the debtor spouse s list of exemptions. 45 If the nondebtor spouse subsequently files his or her own individual bankruptcy, the same exemptions in the community property are not available. 46 As a result, the subsequent debtor spouse can only claim exemptions that the initial debtor spouse missed. A. Idaho V. Contract Obligations Versus Tort Liabilities: A State-by-State Approach Idaho allows either spouse to manage and control community property with one exception: any transaction regarding community real estate requires joint execution. 47 In addition, a spouse s separate property is not subject to seizure to satisfy a debt incurred by the other spouse acting alone. 48 As a result, whether premarital or postmarital, when the executing spouse acts unilaterally, debts or obligations do not attach to the other spouse s separate property. The community property, on the other hand, is subject to prenuptial debts or obligations Contract Obligations. In Idaho, when a spouse incurs a postmarital debt for the benefit of the community, both the spouse s separate property and the community property are obligated. The other spouse s separate property, however, is not liable unless the spouse con- D.Ariz. 2003)) U.S.C. 524(b). 43 9A Am. Jur. 2d Bankr (2007) (citing In re Perez, 302 B.R. 661 (Bankr. 44 Burman v. Homan (In re Homan), 112 B.R. 356, 359 (9th Cir. B.A.P. 1989) (citing 11 U.S.C. 541(a)(2)(A) and 522(b)) In re Homan, 112 B.R. at 359 (citing 11 U.S.C. 522(a)(1) and 522(1)). 46 Steward v. Morris (In re Steward), 227 B.R. 895, 899 (9th Cir. B.A.P. 1998). 47 I.C In re Hicks, 300 B.R. 372, 376 (Bankr. D.Idaho 2003). I.C through 49 I.C ; Williams v. Paxton, 98 Idaho 155, 161, 559 P.2d 1123, 1129 (1976).
11 sented. 50 In addition, [a] creditor can collect against community property of both spouses to pay the separate debt of one spouse Tort Liability. Idaho law is unsettled about whether community property is liable for the tortious conduct of one spouse. Neither the Idaho State Legislature nor the Idaho Supreme Court has addressed the general rule as to tortious conduct. Generally, a creditor can execute against community property to satisfy a separate debt of one spouse. 52 As a result, Idaho courts have applied the general rule to circumstances of tortious conduct that benefitted the community or occurred in management of the community. Concerning circumstances where the tort neither benefits the community nor occurs during management of the community, the law is unclear. Although there has been some uncertainty surrounding this area of law, 53 bankruptcy practitioners should be aware that the United States Bankruptcy Court for the District of Idaho has held that community property can be reached to satisfy a creditor s claim against one spouse for [all] tortuous conduct The confusion over the current State of Idaho law results from the Hansen v. Blevins case. 55 In that case, the Idaho Supreme Court refused to assert a bright-line rule that community property is always liable for the tortious conduct of a single spouse. 56 Instead, the court stated that it is not necessary to a decision in this case to determine whether community property is liable in all cases for the payment of obligations incurred by the tort of the husband, because the husband committed the tort while managing the community business. Prior to Hansen, First National Bank v. Samuels held that community property is not liable for tortious conduct unless both spouses are defendants to the tort complaint. 57 In another prior case, the federal District Court for the Eastern District of Washington determined that, under Idaho law, a couple s community property was not liable for the tor- 50 Id. Idaho Code (2007). 51 Amato v. U.S., 94 F.Supp. 2d 1081, 1085 (D. Idaho 1999) (citing Bliss v. Bliss, 127 Idaho 173, 898 P.2d 1081, 1084 (1995)). If, however, a spouse fraudulently or selfishly depleted community property to preserve separate assets, the community may be entitled to reimbursement. Bliss, 127 Idaho at ). 52 In re Hegg, 239 B.R. 833, 836 (Bankr. D.Idaho 1999) (citing Bliss, 127 Idaho 53 Id. (citing The Uncertainty of Community Property for the Tortuous Liabilities of One of the Spouses: Where the Law Is Uncertain, There Is No Law, 30 Idaho L. Rev. 799 (1994)). 54 Id. 55 Hansen v. Blevins, 84 Idaho 49, 367 P.2d 758 (1962). 56 Hansen, 84 Idaho 57 (1962). 57 First National Bank v. Samuels, 53 Idaho 780, 780, 27 P.2d 959, 960 (1933). 7 9
12 tious conduct of the husband because the act had no connection with the community and the community receives no benefit therefrom. 58 The Idaho Supreme Court s most recent decision held that [c]ommunity assets may be reached to satisfy a debt incurred by one spouse s fraud committed during marriage even if the other spouse is completely innocent of the fraud and has no personal liability where the fraud benefits the community or occurs during the spouse s management of the community. 59 As a result, whether the community property is liable for the tortious conduct of one spouse that neither benefits the community nor is outside the management of the community is unclear. B. Washington Washington law presumes that any debt incurred during marriage is a community debt unless a spouse proves by clear and convincing evidence that the debt is separate. 60 If there is no community, due to death or divorce, there is no community left to support the presumption. In Washington, both spouses have an equal right to manage and control community property except in the following circumstances: 61 (1) a spouse cannot devise or bequeath more than his or her one-half interest in the community property; (2) a spouse cannot give community property with the express or implied consent of the other spouse; (3) any transaction regarding community real property requires the joining and acknowledgment of both spouses; (4) the purchase or contract of community real property requires joint involvement or execution; (5) except for purchase money security interests, a security interest in household goods requires a joint execution; and (6) when both spouses manage a business, any transactions regarding the assets, real estate, or goodwill of the business requires joint participation. 1. Contract Obligations and Marital Bankruptcy. Generally, the debts of each character are collectable only from assets of the same character, i.e., community obligations first collectable from community assets and separate obligations from separate property. Marriage may terminate significantly reduce a creditor s right to collect a judgment for a prenuptial debt. 62 Where a creditor s only avenue for recovery is garnishment of the wages of an unmarried person, the marriage of that person may cause marital bankruptcy because the debtor cannot collect against the community property wages without the spouse s consent. 63 Revised Code of Washington provides a limited remedy for creditors. Under the statute, a premarital creditor may execute a 1948). 58 Great Am. Indem. Co. of N.Y. v. Garrison, 75 F.Supp. 811, 815 (E.D. Wash. 59 Hegg v. I.R.S., 136 Idaho 61, 63, 28 P.3d 1004, 1006 (2001). 601 Wash. Prac (2007). 61 RCW Wash. Prac (citing RCW ). 63 Id. (citing, e.g., State v. Miller, 32 Wash. 2d 149, 201 P.2d 136 (1948)). 7 10
13 judgment against the premarital debtor s wages. 64 The claim, however, must be reduced to judgment within three years of the marriage, and the debtor has no obligation to inform the creditor of the marriage. 65 Regarding debts incurred during marriage, except in cases involving family expenses, if one spouse unilaterally enters into a contractual obligation, then the noncontracting spouse s separate property is not obligated. 66 Only the contracting spouse s separate property and the community property are obligated. 2. Tort Liability. If one spouse commits a tort during the marriage, the other spouse s separate property is not liable for the tortious conduct unless there would be joint responsibility between the spouses if they were unmarried. 67 The community is liable for the tort of either spouse if the tort is calculated to, done for, or results in a benefit to the community. In cases where only one spouse is liable as an individual, the tort plaintiff must first collect from the tortfeasor s separate property before executing against the tortfeasor s one-half interest in the community personal property and real property. 68 If the tortfeasor s separate property and share of the community personal property are insufficient to satisfy a judgment, a successful tort plaintiff may execute against the tortfeasor s interest in community real property. 69 In cases where the tort is committed in the management of the community business, the tort plaintiff may execute against the tortfeasor s community property interests before executing against the tortfeasor s separate property interest. 64 Id. (citing Stafford v. Stafford, 10 Wash. 2d 649, 117 P.2d 753 (1941), and Knittle v. Knittle, 2 Wash. App. 208, 467 P.2d 200 (1970)). 65 Id. (citing Watters v. Doud, 92 Wash. 2d 317, 323, 596 P.2d 280, 284 (1979)) Wash. Prac Id. (citing RCW ). 68 Note, however, in the event a tort plaintiff collects the judgment from the tortfeasor s one-half interest in community personal and real property, the tortfeasor s spouse is entitled to an equitable lien in the same amount as the judgment collected. 69 Id. (citing Keen v. Edie, 131 Wash. 2d 822, 935 P.2d 588 (1997)). 7 11
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