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Business Law

Personal Guaranties: Affected by Same-Sex Marriage?

In the wake of two court rulings legalizing same-sex marriage, businesses that extend credit should be reminded that both spouses must sign a personal guaranty in order to bind the marital community.

Kevin Estevez

  Jason Clark  
   

It is common in the construction industry for companies to require customers to sign a personal guaranty in order to secure an extension of credit to their business. The personal guaranty is intended to incentivize the customer to satisfy his obligation to the company, and provides recourse to the seller or supplier in the event the customer does not. As the guaranty is intended to protect the company extending credit, it is imperative that companies that rely on credit transactions understand who is required to sign a guaranty to recognize its full benefit.

Community Property. Arizona is a community property state, meaning any property acquired during the marriage by either spouse, with a few exceptions, is presumed to belong not to the individual spouse but to the couple’s marital community. In most instances, either spouse, on his or her own, has the ability to bind the community or otherwise manage, control and dispose of community assets. However, an important exception to this general rule applies to guaranties.

In Arizona, a guaranty of a corporation’s debt is binding on the marital community only if signed by both spouses. Where only one spouse signs a guaranty, only that spouse’s sole and separate property may be recovered by the creditor to satisfy the guaranty; the marital community and the non-signing spouse’s sole and separate property are immune from the creditor.

Court Decisions. Getting the signatures of both spouses took on a new wrinkle after the U.S. Supreme Court (in Obergefell v. Hodges) legalized same-sex marriage throughout the country, a few months after a federal district court (in Connolly v. Jeanes) ruled that Arizona laws banning same-sex marriage were unconstitutional.

As a result of the Obergefell and Connolly decisions, Arizona’s community property laws apply with equal force to same-sex marriages. Consequently, businesses that require personal guaranties of a corporation’s debt must be mindful of these decisions when extending credit.

In short, businesses should always ask a potential guarantor whether he or she is married before having him or her sign the guaranty. If the potential guarantor is married, then businesses must be vigilant in obtaining both spouses’ signatures on the guaranty in order to bind the marital community to the corporate debt.