On February 28, 2017, the Supreme People’s Court promulgated the amendment to the Second Interpretation of the Supreme People’s Court on Issues Concerning the Application of the Marital Law of the People’s Republic of China (the “Second Interpretation”) to amend provisions concerning the joint debts of married couples. Pursuant to Article 24, Paragraph 1 of the Second Interpretation, a debt arising during an existing marriage relationship shall be deemed as community debt, even for debt assumed by one of the spouses in his/her individual capacity. A debt may be treated as not community debt if one of the spouses can substantiate that the creditor and the debtor have specifically agreed that this is a personal debt, or the circumstances under Article 19, Paragraph 3 of the Marital Law applies. The new Paragraphs 2 and 3 specify that a people’s court need not recognize a third-party claim over any fictitious debt or illegal debt.
When promulgating the Second Interpretation, the Supreme People’s Court also promulgated the Circular of the Supreme People’s Court on Conducting a Proper Trial Involving Debts of Married Couples (hereinafter, the “Circular”) to further explain the debt issues of married couples on one hand, while also providing guidance for trying such cases. The Circular is highlighted below:
1. The right of the spouse who is not a named debtor to initiate litigation is protected.
When trying such cases, the court in principle should summon both the husband and wife and all the other relevant parties to appear in court so as to ensure the right of litigation by the spouse not named as a debtor. A spouse not named as a debtor shall not be required to assume civil liabilities without a trial.
2. Whether the debt actually existed.
The Circular specifically provides that courts are prohibited from simply concluding a debt exists based solely on indebtedness evidence such as IOUs. Instead, they must examine the facts of the case to determine whether the debt actually exists. When facing a party’s confession which goes against common sense, the court should ex officio investigate the truthfulness of the confession. In case where one of the spouses voluntarily applies to the court for a civil mediation document, the court should review whether a mediation agreement would impair the lawful rights and interests of the other spouse given the basic facts of the case.
3. Illegal and false claims are not protected.
This portion seeks to explain the amendments under Article 24, Paragraphs 2 and 3 of the Second Interpretation by reiterating that the law does not protect claims arising from criminal activity, or claims that are falsified by one of the spouses in collusion with a third party. A creditor who is aware or should have been aware that one of the spouses incurs a debt for engaging in illegal activities shall not assert that such debt case should be treated as community debt. In addition, a party who engages in false legal action shall face civil and administrative penalties, and if the matter constitutes a criminal offense, the relevant investigation agencies will take on the case.
4. The determination criteria for debts of married couples should be leveraged.
Issues involving debts raised by one of the spouses in his/her personal capacity should be handled in accordance with the applicable property system for the couple and the relevant judicial interpretations of the Marital Law.
5. The right of a married couple to a basic livelihood should be protected and unaffected by enforcement of a debt.
The Circular specifically affirms the rationale that livelihood take precedence over any claim. When a community debt of a married couple is pursued, their basic right to a livelihood should not be violated, and the necessary living expenses of the married couple and their dependents should be left alone. In addition, there shall generally be no auction or foreclosure against a house that a person subject to enforcement needs for basic livelihood.