Author: LegalEase Solutions

Introduction

A business owner is sued in the State of Arizona for business that was conducted in the State of Michigan.  Arizona is a community property state.  Therefore, the business owner’s spouse is also named in the lawsuit as a defendant.  The spouse was not part of the business.   She did not engage in any of the business set forth in the complaint.  She was merely made part of the lawsuit for being the wife of the defendant.  This is permissible in the State of Arizona under a community property theory.

Questions Presented

1. Is Michigan a community property state in a civil lawsuit?
2. Whether Michigan will recognize a judgment from another state when that judgment against the spouse is based solely on the fact that she is married to the defendant?
3. How can judgments be attached against community property in Michigan, and what are the instances where the assets of the spouse of a judgment debtor can be attached, either owned by the spouse only or jointly owned by spouse and judgment debtor?
4. Is there a homestead exemption in collection actions?  Can a creditor attach the home of a judgment debtor if the home is jointly owned with the spouse?  Is remedy limited to attaching a lien or forced sale of home?

Short Answers

1. No.  Michigan is not a community property state in a civil law suit.
2. Yes.  Michigan courts will give “full faith and credit” to the Arizona judgment even though the judgment against the spouse is based solely on the fact that she is married
   to the defendant.
3. A judgment lien attaches to a judgment debtor’s interest in real property if a notice of judgment lien is recorded in accordance with MCLS § 600.2803.  A judgment lien does not attach to an interest in real property owned as tenants by the entirety unless the underlying judgment is entered against both the husband and wife.
4. Yes.  There is a homestead exception in collection actions.  A judgment debtor’s homestead is exempt from sale and levy under execution.

Discussion

1. MICHIGAN IS A NOT A COMMUNITY PROPERTY STATE.

Michigan is not a community property state with respect to a civil lawsuit.  See McGinn v. McGinn, 126 Mich. App. 689 (Mich. Ct. App. 1983) (holding that the rule regarding military nondisability pensions applies in Michigan, even though Michigan is not a community property state).  See also Hutchins v. Hutchins, 71 Mich. App. 361,366 (Mich. Ct. App. 1976) (accepting plaintiff’s argument that “Michigan is not a community property state.”); Std. Ins. Co. v. Schwalbe, 47 Wn. App. 639, 643 (Wash. Ct. App. 1987) (a Washington court refusing to give persuasive effect to precedent holding that the other party in a divorce action may set aside transfers of property in violation of an injunction because “Michigan is a non community property state.”)

Therefore, in Michigan, the business owner’s wife cannot be sued for her husband’s business for the sole reason that she was married to him.

1. MICHIGAN COURTS WILL GIVE “FULL FAITH AND CREDIT” TO THE ARIZONA JUDGMENT EVEN THOUGH THE JUDGMENT AGAINST THE SPOUSE IS BASED SOLELY ON THE FACT THAT SHE IS MARRIED
   TO THE DEFENDANT.

A foreign judgment is any judgment decree, or order of a court of the United States or of any other court that is entitled to full faith and credit in Michigan.  MCLS § 691.1172.  A foreign judgment is conclusive if jurisdiction has been obtained over the parties and the subject matter.  National Equipment Rental, Ltd. v. Miller, 73 Mich. App. 421, 424-425 (Mich. Ct. App. 1977).  A judgment filed under the Uniform Enforcement of Foreign Judgments Act has “the same effect and is subject to the same procedures, defenses, and proceedings for reopening, vacating, or staying as a judgment of the circuit court, the district court, or a municipal court of the state and may be enforced or satisfied in like manner.”  MCLS § 691.1173.  See also Electrolines, Inc. v. Prudential Assur. Co., 260 Mich. App. 144, 157-158 (Mich. Ct. App. 2003).

The Full Faith and Credit Clause of the United States Constitution requires that judgments from a particular state be given the same full faith and credit in every court within the United States as is given to it in the state of its rendition.  US Const, art IV, § 1, cl 1.  Its purpose is to avoid relitigation of issues previously decided by a foreign court.  Citicorp Vendor Fin., Inc. v. Trillium Eye Plastic, 2006 Mich. App. LEXIS 396, 2 (Mich. Ct. App. Feb. 16, 2006) (unpublished).  See also Van Pembrook v. Zero Mfg Co, 146 Mich. App. 87, 100-101 (1985).  However, full faith and credit does not mean that States must adopt the practices of other States regarding the time, manner, and mechanisms for enforcing judgments.  Tacco Falcon Point, Inc. v. Clapper, 2007 Mich. App. LEXIS 224, 5-6 (Mich. Ct. App. Feb. 1, 2007) (unpublished).  Enforcement measures do not travel with the sister state judgment as preclusive effects do, but such measures remain subject to the evenhanded control of forum law.  Id.

A party may collaterally attack a judgment from a sister state court in a Michigan court by “showing that the judgment sought to be enforced was void for want of jurisdiction in the court which issued it.”  Citicorp Vendor Fin., Inc. v. Trillium Eye Plastic, 2006 Mich. App. LEXIS 396, 3 (Mich. Ct. App. Feb. 16, 2006).  See also Blackburne & Brown Mortg. Co. v. Ziomek, 264 Mich. App. 615, 620-621 (Mich. Ct. App. 2004).  Therefore, Michigan courts are not obliged under the federal Constitution or the Uniform Enforcement of Foreign Judgments Act to give a foreign judgment full faith and credit where an effective attack over the jurisdiction of the foreign court has been mounted.  Citicorp Vendor Fin., Inc, 2006 Mich. App. LEXIS 396, 4.  See also California v Max Larsen, Inc, 31 Mich. App. 594, 597-598 (1971).

In the present case, the Arizona judgment is a “foreign judgment.”  According to MCLS § 691.1172 a foreign judgment is entitled to full faith and credit in Michigan.  Further, a foreign judgment shall be treated in the same manner as a judgment of the circuit court, the district court, or a municipal court of Michigan.  MCLS § 691.1173.  The only grounds by which Michigan will not recognize the foreign judgment is if it is void due to want of jurisdiction in the court which issued it.  Therefore, Michigan will give “full faith and credit” to the Arizona judgment and recognize it even though the judgment was based upon a legal doctrine not recognized in Michigan.

III.       A JUDGMENT LIEN ATTACHES TO A JUDGMENT DEBTOR’S INTEREST IN REAL PROPERTY IF A NOTICE OF JUDGMENT LIEN IS RECORDED IN ACCORDANCE WITH MCLS § 600.2803.

Judgments in Michigan may be enforced through judgment liens.  MCLS 600.2801 et seq.  Walters v. Leech, 279 Mich. App. 707, 715 (Mich. Ct. App. 2008).  MCLS § 600.2803 specifies the conditions for attachment.  Accordingly, a judgment lien attaches to a judgment debtor’s interest in real property if a notice of judgment lien is recorded in accordance with this chapter in the land title records of the register of deeds for the county where the property is located.  See MCLS § 600.2803.  The judgment lien attaches at the time the notice of judgment lien is recorded or, for after acquired property, at the time the judgment debtor acquires the interest in the property.  Id.

1. A Judgment Lien does not attach to an Interest in Real Property owned as Tenants by the Entirety unless the underlying Judgment is entered against both the Husband and Wife.

In Michigan, a judgment lien does not attach to an interest in real property owned as tenants by the entirety unless the underlying judgment is entered against both the husband and wife.  MCLS § 600.2807 (1).  See also In re Guzior (2006, BC ED Mich) 347 BR 237 (judgment lien does not attach to an interest in real property owned as tenants by the entirety unless the underlying judgment was entered against both the husband and wife).  Michigan is among the minority of states retaining the common law tenancy by the entirety.  See Sanford v. Bertrau, 204 Mich. 244 (1918).  Tenants by the entirety, who must be husband and wife, hold under a single title with right of survivorship.  Id.  “Neither husband nor wife acting alone can alienate any interest in the property, nor can the creditors of one levy upon the property; but their joint creditors can reach entireties property.”  Id.  See also In re Grosslight, 757 F.2d 773, 775 (6th Cir. Mich. 1985).  Mich. Comp. Laws Ann. § 600.2807(1) is a codification of Michigan’s strong common law of protecting a tenancy by the entirety interest from the claims of the individual creditors of a husband or wife.  In re Guzior, (2006, BC ED Mich) 347 BR 237 at 243.

In Michigan, tenants by the entirety hold under a single title.  Farrell v. Paulus, 309 Mich. 441, 445 (1944).  Neither spouse has the power without the concurrence of the other to alienate the estate or any interest therein, and neither the land nor the rents and profits therefrom are subject to levy or execution for the sole debts of the husband.  Id.  See also Cole v. Cardoza, 441 F.2d 1337, 1343 (6th Cir. Mich. 1971) (a federal tax lien does not attach to the subject property owned by husband and wife by the entirety, because the Government’s tax lien is against husband only.)  See also Shaw v. United States, 94 F. Supp. 245 (W.D. Mich. 1939) (a lien of the United States for taxes assessed against an individual does not attach to the interest of the individual as one of the tenants holding the property in an estate by the entirety, and the United States is not entitled to have that interest sold under a court order).

Accordingly, only a husband and wife can be tenants by the entireties.  Estes v. Titus, 481 Mich. 573, 580 (Mich. 2008).  A judgment lien will not attach to an interest in real property that is owned as tenants by the entirety, unless the judgment itself is entered against both the husband and wife.  Id.  Property described in MCL 557.151, or real property that is held jointly by a husband and wife as a tenancy by the entirety is exempt from execution under a judgment entered against only one spouse.  Id.

In the instant case, the business owner’s spouse is also named in the lawsuit as a defendant, despite the fact that the spouse was not part of the business.  She did not engage in any of the business set forth in the complaint, and was merely made part of the lawsuit by virtue of being the wife of the defendant.  Although Michigan is not a community property state, the Arizona court has rendered a judgment against both the husband and wife.  This foreign judgment is entitled to full faith and credit in Michigan according to MCLS § 691.1172, unless the judgment is assailable on jurisdictional grounds.  In the present case, there is no jurisdictional issue and the Michigan court will give “full faith and credit” to the Arizona judgment and a judgment lien can be attached to property held jointly by the husband and wife.

1. A JUDGMENT DEBTOR’S HOMESTEAD IS EXEMPT FROM LEVY OR SALE UNDER EXECUTION.

In Michigan, the homestead is protected from execution both by the state’s constitution as well as statutes.  In re Davis, 329 F. Supp. 1067, 1070 (E.D. Mich. 1971).  “Article X, Section 3 of the Michigan Constitution of 1963 provides that “[a] homestead in the amount of not less than $3,500 and personal property of every resident of this state in the amount of not less than $750, as defined by law, shall be exempt from forced sale on execution or other process of any court.  Such exemptions shall not extend to any lien thereon excluded from exemption by law.”  Id.

Moreover, a judgment debtor’s homestead not exceeding forty acres of land is exempt from a judgment creditor’s reach.  See MCLS § 600.6023(1)(h).  Further, real property “held jointly by a husband and wife as a tenancy by the entirety is exempt from execution under a judgment entered against only 1 spouse.”  MCL § 600.6023a.  Any person owning and occupying a house on land not owned and which the person claims as a homestead can claim the exemption.  Id.

 “The homestead exemption is not a mere privilege, but an absolute right.”  Kleinert v. Lefkowitz, 271 Mich. 79, 91 (Mich. 1935).  In Kleinert, the judgment debtor used his property to acquire a homestead through his wife and claimed to be bankrupt.  The trial court refused to let the trustees touch the homestead.  On appeal, the Supreme Court of Michigan affirmed the trial court’s order.  The Court held that “[i]t is not fraud to place property which may be on hand subject to execution out of reach of creditors by using it to acquire a homestead.”  Id. at 88.  Just because adversity presses hard, no family should be driven from their home; a homestead is free and inviolate.  Id. at 85.  See also Dutcher v. Van Duine, 242 Mich. 477, 479-480 (Mich. 1928) (although the court was certain that the conveyance changing title of land from the wife to herself and her husband by the entireties was made in order to defeat execution under a judgment against the wife, the Court gave significance to the homestead rights that had attached to them, and held that they were worth in excess of homestead exemptions).

Therefore, if the business owner and his wife own and occupy a homestead, they can claim exemption from forced sale on execution.  In short, the homestead will be out of the judgment creditor’s reach.