## Facts

- American Olean Tile Company, Inc. extended credit to H & S Tile, a tile business operated exclusively by Horst Schultze during his marriage to Irmgard Schultze.
- Horst and Irmgard separated on April 1, 1980; Irmgard received no support, no business benefits, and had no knowledge of debts incurred after separation.
- On May 1, 1981, the spouses executed a marital settlement agreement (MSA), negotiated at arm’s length with counsel, dividing community property and awarding H & S Tile to Horst as his separate property.
- On May 6, 1981, after the MSA, Horst executed a promissory note to American for $13,747.80 consolidating unpaid invoices; no payments were made.
- The MSA was incorporated by reference into an interlocutory judgment of dissolution entered June 19, 1981.
- American sued; after a default judgment against Horst and difficulties in collection, American amended to seek satisfaction from Irmgard’s former community property awarded to her under the MSA.
- After trial (with Horst absent), the trial court ruled the note was Horst’s sole obligation and Irmgard’s property was not liable; American appealed.

## Issues

1. Whether, after a valid MSA transfers a community business to one spouse as separate property, obligations incurred thereafter are solely that spouse’s obligation even if incurred before entry of the interlocutory dissolution judgment.
2. Whether statutory amendments governing spousal and property liability for debts, expressly applicable to debts enforced on or after a stated date, violate due process when applied to debts incurred before the amendments’ operative date.

## Decision

- The Court of Appeal affirmed the judgment for Irmgard.
- The court held that, once the MSA validly awarded the community business to Horst as his separate property, all business obligations incurred after the MSA were Horst’s sole obligation, notwithstanding that the dissolution judgment was entered later.
- The court held that applying the Family Law Act amendments to enforcement actions occurring after their operative date did not violate due process, even as to debts incurred earlier.
- American could not reach Irmgard’s awarded property to satisfy the note; Horst remained liable.

## Legal Principles

- A valid, arm’s-length marital settlement agreement that transfers a community business to one spouse as separate property allocates to that spouse sole responsibility for business obligations incurred after the agreement.
- For allocating liability between spouses, the operative event may be execution of a valid marital settlement agreement, not the later entry of a dissolution judgment incorporating it.
- Legislative provisions governing which spouse or property is reachable for debt enforcement may be applied to debts enforced on or after a specified date, even if the debt was incurred earlier, without violating due process when the statute regulates enforcement and does not extinguish the creditor’s basic claim against the obligated debtor.

## Conclusion

The court held that the promissory note executed after a valid marital settlement agreement was solely the operating spouse’s obligation and that the nonoperating spouse’s awarded property was not liable; it also upheld applying debt-enforcement amendments to debts enforced after their effective date against a due process challenge.


American Olean Tile Co. v. Schultze, 169 Cal. App. 3d 359 (Ct. App. 1985)