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Community Property • Management
CPROP#052
Legal Definition
Generally, each spouse has equal management power such that either spouse can buy or sell community property and contract debts without the other spouse's consent. There are two exceptions: (1) one spouse cannot sell or encumber personal property used in the family dwelling without written consent (such a transaction is voidable by the other spouse at any time, and (2) when a spouse operates a business interest (and has primary management and control over the business) that is all or substantially all community personal property, he can act alone unless he sells, leases, or encumbers substantially all the personal property used in the business, at which point he must give written notice to the other spouse.
Plain English Explanation
In a marriage, each spouse usually has equal rights to buy, sell, or borrow against community property without permission. However, one spouse cannot sell or borrow against personal household items without written approval. Also, if one spouse runs a business that is mostly community property, they need to notify the other spouse before selling or borrowing against most of the business's property.
The purpose of this rule is to balance individual freedom with protection in a marriage. Each spouse should be able to manage normal community finances day-to-day without needing permission. This avoids constant joint approvals. However, major financial decisions require both spouses to consent. After all, these choices affect both people. Selling the couch or car should require discussion first since that directly impacts the family. Also, if one spouse runs the family business that represents most family assets, then borrowing against or selling the business requires transparency so the other spouse can plan appropriately in case business issues arise later on. The exceptions protect against one spouse secretly putting the family at serious financial risk without the other spouse realizing it.
The purpose of this rule is to balance individual freedom with protection in a marriage. Each spouse should be able to manage normal community finances day-to-day without needing permission. This avoids constant joint approvals. However, major financial decisions require both spouses to consent. After all, these choices affect both people. Selling the couch or car should require discussion first since that directly impacts the family. Also, if one spouse runs the family business that represents most family assets, then borrowing against or selling the business requires transparency so the other spouse can plan appropriately in case business issues arise later on. The exceptions protect against one spouse secretly putting the family at serious financial risk without the other spouse realizing it.
Hypothetical
Hypo 1: Bob decides to sell the family car, which is community property, without telling Amy. Amy, who regularly uses the car, is unaware of the sale. Result: Since Bob sold a community property item without Amy's consent, Amy can choose to void the sale at any point.
Hypo 2: Amy, who operates a small baking business using kitchen appliances that are community property, decides to sell the oven without informing Bob. Result: Since the oven is a significant part of the business’s assets, Amy should have notified Bob in writing before the sale. Bob can challenge the sale due to lack of notification.
Hypo 3: Bob gifts the family's living room furniture to his brother Bert without Amy’s written consent. Result: Amy can void the gift and demand the furniture back from Bert since Bob needed her written consent to give away the furniture used in their family dwelling.
Hypo 4: Amy wants to take out a loan and use the family home as collateral. She does this without Bob's knowledge. Result: Although taking out the loan falls under general management rights, using the family home as collateral requires Bob’s consent. He could contest the loan agreement due to lack of consent.
Hypo 2: Amy, who operates a small baking business using kitchen appliances that are community property, decides to sell the oven without informing Bob. Result: Since the oven is a significant part of the business’s assets, Amy should have notified Bob in writing before the sale. Bob can challenge the sale due to lack of notification.
Hypo 3: Bob gifts the family's living room furniture to his brother Bert without Amy’s written consent. Result: Amy can void the gift and demand the furniture back from Bert since Bob needed her written consent to give away the furniture used in their family dwelling.
Hypo 4: Amy wants to take out a loan and use the family home as collateral. She does this without Bob's knowledge. Result: Although taking out the loan falls under general management rights, using the family home as collateral requires Bob’s consent. He could contest the loan agreement due to lack of consent.
