Chapter 3. Allocation Of Debts Between Estate And Surviving Spouse of California Probate Code >> Division 7. >> Part 9. >> Chapter 3.

If it appears that a debt of the decedent has been paid or is payable in whole or in part by the surviving spouse, or that a debt of the surviving spouse has been paid or is payable in whole or in part from property in the decedent's estate, the personal representative, the surviving spouse, or a beneficiary may, at any time before an order for final distribution is made, petition for an order to allocate the debt.

The petition shall include a statement of all of the following:
  (a) All debts of the decedent and surviving spouse known to the petitioner that are alleged to be subject to allocation and whether paid in whole or part or unpaid.
  (b) The reason why the debts should be allocated.
  (c) The proposed allocation and the basis for allocation alleged by the petitioner.

If it appears from the petition that allocation would be affected by the value of the separate property of the surviving spouse and any community property and quasi-community property not administered in the estate and if an inventory and appraisal of the property has not been provided by the surviving spouse, the court shall make an order to show cause why the information should not be provided.

The petitioner shall give notice of the hearing as provided in Section 1220, together with a copy of the petition and the order to show cause, if any.

(a) The personal representative and the surviving spouse may provide for allocation by agreement and, on a determination by the court that the agreement substantially protects the rights of interested persons, the allocation provided in the agreement shall be ordered by the court.
  (b) In the absence of an agreement, each debt subject to allocation shall first be characterized by the court as separate or community, in accordance with the laws of the state applicable to marital dissolution proceedings. Following that characterization, the debt or debts shall be allocated as follows:
  (1) Separate debts of either spouse shall be allocated to that spouse's separate property assets, and community debts shall be allocated to the spouses' community property assets.
  (2) If a separate property asset of either spouse is subject to a secured debt that is characterized as that spouse's separate debt, and the net equity in that asset available to satisfy that secured debt is less than that secured debt, the unsatisfied portion of that secured debt shall be treated as an unsecured separate debt of that spouse and allocated to the net value of that spouse's other separate property assets.
  (3) If the net value of either spouse's separate property assets is less than that spouse's unsecured separate debt or debts, the unsatisfied portion of the debt or debts shall be allocated to the net value of that spouse's one-half share of the community property assets. If the net value of that spouse's one-half share of the community property assets is less than that spouse's unsatisfied unsecured separate debt or debts, the remaining unsatisfied portion of the debt or debts shall be allocated to the net value of the other spouse's one-half share of the community property assets.
  (4) If a community property asset is subject to a secured debt that is characterized as a community debt, and the net equity in that asset available to satisfy that secured debt is less than that secured debt, the unsatisfied portion of that secured debt shall be treated as an unsecured community debt and allocated to the net value of the other community property assets.
  (5) If the net value of the community property assets is less than the unsecured community debt or debts, the unsatisfied portion of the debt or debts shall be allocated equally between the separate property assets of the decedent and the surviving spouse. If the net value of either spouse's separate property assets is less than that spouse's share of the unsatisfied portion of the unsecured community debt or debts, the remaining unsatisfied portion of the debt or debts shall be allocated to the net value of the other spouse's separate property assets.
  (c) For purposes of this section:
  (1) The net value of either spouse's separate property asset shall refer to its fair market value as of the date of the decedent's death, minus the date-of-death balance of any liens and encumbrances on that asset that have been characterized as that spouse's separate debts.
  (2) The net value of a community property asset shall refer to its fair market value as of the date of the decedent's death, minus the date-of-death balance of any liens and encumbrances on that asset that have been characterized as community debts.
  (3) In the case of a nonrecourse debt, the amount of that debt shall be limited to the net equity in the collateral, based on the fair market value of the collateral as of the date of the decedent's death, that is available to satisfy that debt. For the purposes of this paragraph, "nonrecourse debt" means a debt for which the debtor' s obligation to repay is limited to the collateral securing the debt, and for which a deficiency judgment against the debtor is not permitted by law.
  (d) Notwithstanding the foregoing provisions of this section, the court may order a different allocation of debts between the decedent' s estate and the surviving spouse if the court finds a different allocation to be equitable under the circumstances.
  (e) Nothing contained in this section is intended to impair or affect the rights of third parties. If a personal representative or the surviving spouse incurs any damages or expense, including attorney's fees, on account of the nonpayment of a debt that was allocated to the other party pursuant to subdivision (b), or as the result of a debt being misallocated due to fraud or intentional misrepresentation by the other party, the party incurring damages shall be entitled to recover from the other party for damages or expense deemed reasonable by the court that made the allocation.

On making a determination as provided in this chapter, the court shall make an order that:
  (a) Directs the personal representative to make payment of the amounts allocated to the estate by payment to the surviving spouse or creditors.
  (b) Directs the personal representative to charge amounts allocated to the surviving spouse against any property or interests of the surviving spouse that are in the possession or control of the personal representative. To the extent that property or interests of the surviving spouse in the possession or control of the personal representative are insufficient to satisfy the allocation, the court order shall summarily direct the surviving spouse to pay the allocation to the personal representative.

Notwithstanding any other statute, funeral expenses and expenses of last illness shall be charged against the estate of the decedent and shall not be allocated to, or charged against the community share of, the surviving spouse, whether or not the surviving spouse is financially able to pay the expenses and whether or not the surviving spouse or any other person is also liable for the expenses.