Although the economy seems to be improving, contractors are continuing to struggle to find work.  For those fortunate enough to find work, it is important that contractors protect their financial interests by having the owners of the contracting party personally guaranty the contract.

            The contractor's contract is typically with the owner of the project.  If the owner of the project is a partnership, corporation, or limited liability company, the contractor should get one or more of the partners, shareholders, or members to personally guaranty the contract.  In so doing, the contractor will ensure payment from the partner's assets, shareholder's assets, or member's assets in the event the contracting business entity is unable to pay its bills. While this additional level of payment security is advisable, contractors may consider requiring the spouse of the partner, shareholder, or member to guaranty the contract as well.

            Idaho is a community property state. In general, this permits creditors of a spouse to pursue the separate assets of the party executing the guaranty. Most community property of the spouse may be attached as well, provided the debt was incurred on behalf of the marital community. In a situation where only one spouse executes the guaranty, collection efforts will be complicated by determining whether the property at issue is: 1) separate property of the contracting spouse; 2) separate property of the non-contracting spouse; or 3) community property. Further complicating matters is determining whether the debt incurred was for the benefit of the community.

            It is clear that the separate property of the party signing the guaranty may be pursued to satisfy a judgment. Separate property includes all property owned by the spouse prior to marriage, and property acquired by gift or inheritance during the marriage. Property acquired during marriage (except via gift and inheritance) is presumed to be community property. However, the husband and wife may agree contractually that it is separate property. In many cases there is simply very little separate property held by the contracting spouse to satisfy a judgment. In most cases the bulk of the contracting party's property is held as community property.

            The problem with pursuing community property is the requirement that in order to levy on community property, the debt in question must have been incurred for the benefit of the community. While there is a legal presumption that this is the case, collection efforts will be delayed and typically are more expensive if this fact is contested. In addition, in some cases the wages of the non-contracting spouse may be the best source of community property to satisfy a judgment. However, an Idaho statute prevents the contractor from garnishing the wife's wages in satisfaction of the husband's community debt. 

            When only one spouse executes a guaranty, it is clear that the non-signing spouse's separate property may not be levied upon to satisfy the debt. In some cases there may be little separate or community property of the party to the guaranty available to satisfy the debt. Thus, even when the spouse who did not execute the guaranty has significant separate property, the debt may go unsatisfied. It is not uncommon for wily businesspeople to attempt to transfer community property to a spouse to put the property out of reach of creditors. In many cases these transfers can be challenged, but this adds cost and complexity to collection efforts.

            In short, to increase the odds of collection contractors should consider obtaining guaranties from both the owner of an interest in the company who is the party to the contract and that owner's spouse.  By obligating both spouses, collection efforts are more likely to result in the full and timely satisfaction of the debt. Debt collection efforts are time sensitive in that the debtor's financial condition is likely spiraling downward. Spending time resolving whether property is separate or community, or whether the debt is for the benefit of the community, may be the difference between getting paid or not collecting.

            In the event a guarantor resists having their spouse join in the guaranty, a contractor should give serious consideration as to the guarantor's motives. While there may be legitimate reasons for the objection, it may be an indication that the guarantor has transferred assets to their spouse as separate property in order to render the guaranty useless. In the event a contractor elects to proceed with the guaranty of only one spouse, due diligence should be made to determine if sufficient separate property exists to satisfy the debt and/or that the debt is for the benefit of the community and sufficient community property is available to satisfy the debt. Otherwise, the guaranty of one spouse may not have much value. 

  Mike Baldner is a partner with the law firm Meuleman Mollerup LLP, practicing in the areas of real property law and related business matters, including drafting and negotiating purchase and sale transactions, leases, tax deferred exchanges, restrictive covenants, easements, and litigation relating to real estate development.  Mr. Baldner can be contacted at 208.342.6066 or by email at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .  More information at www.lawidaho.com