Loans from the perspective of joint marital property

Why choosing not to co-sign the loan agreement is not necessarily the right choice? As a principle, debts which are assumed by one spouse during marriage without the consent of the other spouse are not a part of joint marital property. Those who, taking out a loan, want to avert the potential threat of future foreclosure may feel that the simplest solution is to have only one of the two spouses sign the loan agreement. However, this approach, elegant though as it seems at first glance, may trigger unexpected issues. 

Under Sec. 710 of the Czech Civil Code, joint marital property includes the debts assumed by either partner during their marriage, with the exemption however of e.g. obligations assumed by one spouse without the consent of their partner (other than obligations in the form of daily expenses or unless the spouse takes care of customary needs of the family). This statutory provision imposes a fairly straightforward rule: debt assumed by only one of the spouses does not become a part of the joint marital property, with certain expressly defined exceptions (spousal consent, day-to-day expenses, customary needs).

Where debts are assumed but not repaid, the creditor maybe expected to attempt to collect them by filing suit with a court and then take the final judgment to a bailiff. At this stage, the following may be expected to happen: if one or both spouses are debtors, then the bailiff will seize assets belonging to the joint marital property, either to the full extent of the debt (if the debt is part of the said joint property) or – if the debt is part of the spouse’s personal property – up to the share of the spouse (and debtor) in the joint property.

Let’s examine the situation by looking at a hypothetical case: a married couple decides to take out a loan. Both of them know of the loan, and both consider it to be a part of their joint marital property, but only one of them signs the loan agreement. Later, they default on the payments, and the creditor takes them to court.

According to the rules laid out above, the loan obligation clearly ought to be a part of the joint marital property (because the other spouse gave consent); consequently, both spouses consider themselves debtors and both decide to take procedural steps vis-a-vis the court – however, to the great consternation of the spouse who didn’t co-sign the loan agreement, his or her initiative in proceedings is dismissed by the court, which denies them the status of a party to the proceedings.

Note that the Supreme Court has on repeated occasions ruled as follows: “The discharge of obligations which are a part of a couple’s joint marital property but which were assumed by only one of the spouses cannot be claimed from the other spouse by the creditor (within the fact-finding procedure before the court); this has no bearing on the creditor’s right to seek satisfaction of the obliged spouse’s debt within enforcement or foreclosure proceedings by way of seizure of assets belonging to the joint marital property“. This conclusion is logical in the sense that an individual who never signed the relevant written contract and thus never engaged in any legal transaction with the contractual partner cannot very well be considered a party fully endowed with the rights and obligations arising from said contract.

However, in our model case, this conclusion of the Supreme Court clearly runs counter to the letter of the law – according to the court, the spouse who did not sign the loan agreement is not in the legal position of the debtor, even though the law clearly states that debts which were assumed with the knowledge and consent of the spouse are a part of the joint marital property and that therefore both spouses are debtors. This may lead to serious complications for the said spouse (who consented but did not co-sign), possibly curtailing their rights, because they cannot appear in court at all to defend themselves or bring objections. If they avail of facts which could completely reverse the outcome of the legal dispute, they cannot raise them in court, and if they are unable or unwilling to share the information with their spouse, the court may well obliged them to repay the debt!

Where a loan is not repaid, a truly absurd scenario may occur – the courts denied the spouse the right to defend themselves in court, but the bailiff visits him or her nonetheless and begins to seize assets belonging to the joint marital property.

Source: Act No. 89/2012 Coll., Civil Code, Czech Supreme Court ruling 33 Cdo 823/2013, Czech Supreme Court ruling 31 Odo 677/2005

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