CHAPTER 13.10. Spousal Guaranties

• Jurisdiction: United States

13.10. Spousal Guaranties

Lenders will at times require that the spouse of an individual guarantor also be a guarantor even though that spouse may have no interest in either the borrower or the collateral.¹¹⁶ From the lender's standpoint, the joinder of the spouse to the guaranty might be important in order for the lender to have access to jointly held assets of the guarantor in the event the lender has to enforce the guaranty. For example, the residence of the guarantor owned with her spouse as tenants by the entirety could not be attached by the lender's judgment against the guarantor alone.¹¹⁷

However, can the lender legally require the spouse to execute the guaranty where the spouse has no interest in the borrower or the collateral? In particular, does the Equity Credit Opportunity Act¹¹⁸ (ECOA) prevent requiring the spouse's signature?

With respect to ECOA, the general rules are that the lender cannot require a spouse's signature for an individual obligor.¹¹⁹ In addition, the Women's Business Ownership Act of 1988 that amended ECOA eliminated special rules for business and commercial loans. Accordingly, the same rules apply to all loans, including business loans.¹²⁰ The exceptions to the general rules are that the spousal guaranty can be required if: (i) the spouse is an applicant; (ii) the spouse is a principal in the business entity applicant;¹²¹ or (iii) under state law, the ownership interest of the spouse in the guarantor's property requires the spouse to join the guaranty.¹²² In addition, the lender can require the spousal guaranty when the applicant does not meet creditworthiness standards; however, anyone, not just the spouse, satisfying the creditworthiness parameters could be offered as an acceptable co-guarantor to defeat the requirement for the spouse to sign.¹²³ The lender can also require the spousal guaranty when additional signatures are necessary to ensure the lender can reach assets on which the credit is based; however, this can be satisfied by documents relating to collateral (e.g., mortgage) rather than the spouse becoming a co-obligor or a co-guarantor.¹²⁴ Finally, there may be an obligation to release the spousal guarantor once the borrower's cred-itworthiness reaches the lender's creditworthiness standard.¹²⁵

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Notes:

^[116] Of course, one spouse does not become liable for the debt of the other—whether these debts are incurred before or after the marriage—simply by virtue of being the debtor's spouse. E.g., Trader v...