The Colorado Family Purpose Doctrine
The general rule is that liability for a debt rests with the person who incurred the debt. However, like most general rules, there are many exceptions. One of those exceptions is something called the Colorado family purpose doctrine.
What is the Colorado Family Purpose Doctrine?
The family purpose doctrine states that the expenses of the family and the education of the children are chargeable upon the property of both husband and wife, or either of them, and in relation thereto they may be sued jointly or separately. In simple English, this means that both husband and wife are responsible for the grocery bill regardless of who went to the store.
At first glance, this seems like a good rule and perhaps it is. The concept is that if the family unit benefited from the expense, then the family unit should be responsible for the bill. The medical, dental and educational costs incurred for the benefit of the children are the debts of both the husband and wife. However, in Colorado probate matters we see more and more creditors suing the surviving spouse and using the family purpose doctrine to do so.
For example, an ill spouse may incur a large hospital bill before passing away. The Colorado probate estate may not have any assets. Many times, this debt is not covered by insurance, and the debt is several hundred thousand dollars. Through the use of the family purpose doctrine, the medical providers file suit against the surviving spouse instead of the Colorado probate estate. In many instances, this kind of debt will be a financial disaster for the surviving spouse.
Protecting Yourself from the Family Purpose Doctrine
The difficult question is what is a “family expense”. Courts in other states have held that medical expenses are considered a family expense even though incurred solely for the benefit of one spouse. But, how far will the courts take this line of reasoning? If I get my teeth whitened, will my spouse be liable for the bill? Will the power tools I buy at the local hardware store ultimately be the debts of my wife? Won’t she be thrilled to hear that!
Protecting yourself from the reach of this family purpose doctrine is not easy. The best defense is that most creditors do not seem to be aware of the rule. However, that is changing.
Get Medical Insurance to Reduce the Risks of Colorado’s Family Purpose Doctrine
Having good medical insurance is one way to reduce the risk of the family purpose doctrine. Most cases we see involve medical bills incurred shortly before death and the opening of a Colorado probate estate. If the medical expenses are not covered by insurance, not only can the bill be large, but also more than it would be if covered by insurance. Even a high deductible medical policy will entitle the holder to the insurance company rate/discount for the services. Many times that amount is literally a fraction of the gross bill.
Get a Life Insurance Trust or Other Irrevocable Trusts as Protection Against the Family Purpose Doctrine
A life insurance trust or other irrevocable trust can provide some protection against the family purpose doctrine. Assets in an irrevocable trust are generally beyond the reach of the beneficiary’s creditors and outside of the Colorado probate estate. Although the deceased funds the life insurance trust, the assets are not considered to be assets of the deceased or of the beneficiary.
As ironic as it may sound, divorce may be an option of last resort, at least from a financial standpoint. The doctrine is specific to husbands and wives. It does not seem to cover boyfriends, girlfriends and significant others. If the debt is incurred while a person is single, it is probably not covered by the family purpose doctrine.