Creditors and Community Property In California
California considers certain properties “community property.” If a decedent was married and still has a surviving spouse, most assets acquired after marriage are considered jointly owned. These jointly owned or acquired assets are what’s known as community property.
If a creditor can’t satisfy their claim through estate assets, they can demand that a surviving spouse resolve a balance on or through community property.
California’s Creditor “Priority” List
California also assigns creditors different levels of priority, and an estate executor must pay certain creditors before others. Creditor priority exists to ensure that individuals or entities with the most pressing claims have the best chance of recovering whatever debt they are owed.
Section 11420 of the California Probate Code has seven “priority” classes. They are:
- Administrative expenses, or all costs resultant from executing an estate
- Secured debts, liens, and deeds of trusts
- Funeral expenses
- Medical expenses, if illness was the cause of death
- Family allowances, or a “reasonable” amount of money or assets to any surviving spouse or children who were not intentionally excluded from a will or trust
- Wage claims of up to $2,000, which can be made by employees or contractors who did not receive payment for work done within 90 days of a decedent’s death
- General debts which do not fall into any of these categories
The list of potential creditors is fairly exhaustive. Since outstanding balances will not disappear when a person dies, the estate executor must fulfill any and all valid debts before disbursing inheritances.
Protecting a California Estate From Old Debt
There can be complications in the event a decedent’s estate does not have adequate assets to pay creditors. In some cases, an estate’s assets can be completely depleted by creditor claims, leaving little or nothing to its intended beneficiaries.
If you’re executing an estate or trying to protect your legacy from creditors, you should seek professional guidance. An experienced estate planning attorney can help you evaluate the validity of creditor claims; they can also recommend novel estate protection techniques such as creating an irrevocable trust for at-risk funds, properties, and other assets. The best tools depend on the size of your estate, the type of assets you possess, and the kind of debt you possess.
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