The biggest change in recent times is Congress' radical changes in bankruptcy laws in 2005. Credit card debt is much harder to get rid of, and you can make yourself liable in someone else entire credit card debt by using (and signing) one credit charge slip.
Spousal Liability During Marriage
There is a common misconception that there are "community debts" or "community liabilities." The general rule in Texas is that liability follows management. This concept will be explored in more depth later in this article. First, some general information on responsibility for debts and liabilities for one's spouse and children.
Spouses can have direct and indirect legal responsibility for debts or liabilities.
Direct responsibility occurs when a spouse signs an instrument or contract obligating himself or herself. A common example would be an application for credit.
Indirect liability is based on agency principles and the doctrine of necessaries.
Under the Texas Family Code, a person is personally liable for the acts of the person's spouse only if: (1) the spouse acts as an agent for the person; or (2) the spouse incurs a debt for necessaries. A spouse does not act as an agent for the other spouse solely because of the marriage relationship.
The doctrine of necessaries was a part of the common law of the State of Texas, and is now set out in the Texas Family Code as follows:
"Each spouse has the duty to support the other spouse. Each parent has the duty to support his or her child during the period that the child is a minor, and thereafter as long as the child is fully enrolled in an accredited secondary school in a program leading toward a high school diploma until the end of the school year in which the child graduates. A spouse or a parent who fails to discharge the duty of support is liable to any person who provides necessaries to those to whom support is owed."
What is "necessary" varies from case to case, and is dependent upon one's station in life. At a minimum, necessaries include food, clothing, shelter, and non-elective medical care.
As stated above, what property can be taken to satisfy a debt depends on the management rights of that property.
With the exception of homestead property, each spouse has the sole management, control, and disposition of: 1) his or her separate property; and 2) the community property that he or she would have owned if single (personal earnings; revenue from separate property; recoveries from personal injuries; etc.). All other community property is subject to the joint management, control, and disposition of the husband and wife, unless the spouses provide otherwise by power of attorney in writing or other agreement.
Generally, the only property that is subject to seizure for a spouse's liabilities is property over which that spouse has some right of management or control. Torts committed during marriage, however, are treated differently. The rules of marital property liability are as follows:
- A spouse's separate property is not subject to the liabilities of the other spouse unless both spouses are liable by other rules of law. Again, an example would be when both spouses sign a contract or loan application.
- Unless the incurring spouse is acting as an agent or is incurring a debt for necessaries, the community property subject to a spouse's sole management, control, and disposition is not subject to: a) any liabilities that the other spouse incurred before marriage; or b) any nontortious liabilities that the other spouse incurs during marriage.
- The community property subject to a spouse's sole or joint management, control, and disposition is subject to the liabilities incurred by him or her before or during the marriage.
- All community property is subject to the tortious liability of either spouse incurred during marriage.
A chart illustrating these rules is attached.
These rules can be altered by premarital or postmarital contracts or agreements, subject to the rights of existing creditors. Additionally, a creditor may agree to only look to a certain source for repayment of a debt - ie: looking only to a spouse's separate property or to a specific property as security for repayment of the debt.
The ability to actually seize property to satisfy a liability is limited by the Texas Constitution, the Texas Property Code, and the Texas Insurance Code.
The Texas Constitution protects the homestead from seizure for claims of creditors except for purchase money; taxes on the property; properly executed liens for home improvements; and owelty in a divorce situation. It also prevents the garnishment of current wages except for court-ordered child support payments.
The Texas Property Code exempts certain personal property from execution, in an amount not to exceed $15,000.00 for an individual and $30,000.00 for a family. A list of items eligible for the exemption is listed in Section 42.002 of the Texas Property Code, and includes items such as furniture, tools and items used in a trade or profession, and one car. The Property Code also establishes an exemption for retirement plans.
The Texas Insurance Code exempts all proceeds payable under a life, health, or accident policy. The cash surrender value of a life insurance policy is also exempted if it has been in force for more than two years, and a family member or dependent is a beneficiary.
The new "wild card" in the liability area is the 2005 Bankruptcy reform law that was passed by Congress/ the Credit Card Company lobbyists. Also another law went into effect in January, 2006, DOUBLING the required the minimum monthly payment on a credit card debt. Signing on another's credit card can make you liable on the entire balance of the credit card, even if you had nothing to do with the prior charges on the card. Check out this site for consumer credit information.
Liability for Debts and Torts of Children
In general, persons under the age of 18 cannot make contracts. The principal source of liability for parents for the contracts of their children arises from the general duty to support and the doctrine of necessaries, both of which were discussed above.
A parent is also generally not liable for the torts of a child simply based on the family relationship. There must be some basis for personal liability. A parent can be liable for acts of his or her own negligence, resulting in the child's tort. Common examples would be negligent entrustment of an automobile or firearm.
By statute, parents have some liability for the property damage caused by the torts of their children. A parent (or other person having the duty of control and reasonable discipline of the child) is liable for any property damage proximately caused by: 1) the negligent conduct of the child if the conduct is reasonably attributable to the negligent failure of the parent or other person to exercise that duty; or 2) the wilful and malicious conduct of a child who is between 12 and 18 years of age. Recovery for damages caused by wilful and malicious conduct is limited to actual damages, not to exceed $15,000.00 per act, plus court costs and reasonable attorney's fees. See the new law dealing with damages to hotel rooms.