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.
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 couples 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 corporations
debt is binding on the marital community only if signed by both
spouses. Where only one spouse signs a guaranty, only that spouses
sole and separate property may be recovered by the creditor to
satisfy the guaranty; the marital community and the non-signing
spouses 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, Arizonas community property laws apply with equal force to same-sex marriages.
Consequently, businesses that require personal guaranties of a corporations
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.