Dividing property is undertaken during your divorce. To The process of dividing property begins by first characterizing the property that you and your spouse own. Property is characterize as either separate property or community property. Once characterized, you and your spouse can then decide on the particular items each of you is to get.
Dividing Property with Commingled Assets
When community funds are used to make payments to reduce the principal balance of a separate property mortgage, the community acquires an apportionable ownership interest in the mortgaged property. The interest consists of a dollar-for-dollar reimbursement for those payments and an interest in the appreciation of the separate property. Marriage of Moore (1980) 28 C3d 366; Marriage of Marsden (1982) 130 CA3d 426. This is often referred to as the Moore-Marsden doctrine or rule.
The court in Bono v Clark (2002) 103 CA4th 1409, 1422, extended the Moore-Marsden rule to community expenditures for improvements to the owner’s separate property. Thus, when community funds are used to make capital improvements to separate property, the community may acquire an ownership interest in the separate property consisting of:
- Dollar-for-dollar reimbursement for contributions to capital improvements (even if the improvements did not enhance the property’s value); and,
- An interest in the appreciation of the separate property, provided the improvements actually increase the value of the property.
Dividing Property Acquired During Marriage
Dividing property is done to determine the community interest in an asset. When property is acquired during marriage it is characterized as community property. Community property is often property acquired in joint form. In some instances, however, property acquired during marriage will be separate property, e.g., title acquired in name of one spouse alone, purchased with primarily that spouse’s separate funds, and substantial evidence suggesting that any community property funds used were intended as gift from non-title-holding spouse. Marriage of Lucas (1980) 27 C3d 808, 817. See also Marriage of Ruelas (2007) 154 CA4th 339, 345 (wife who took title to condominium in own name did so for benefit of her parents who funded acquisition (Family Code §760 was rebutted, resulting trust arose for parents, and husband’s only remedy was nominal community property reimbursement).
When separate property is acquired during marriage with a down payment from separate funds and a loan based on community assets, apportionment of separate and community interests in the property is required. The separate property acquires an interest in the ratio that the down payment bears to the purchase price. The community property acquires an interest in the ratio that the community loan bears to the purchase price. Remember that any appreciation must be apportioned accordingly. The following is an example:
Assume that property is purchased for $100,000. One spouse pays the entire down payment of $20,000 from separate funds. The remaining $80,000 coming from a loan based on community credit. The result is a separate property interest of 20 percent (the ratio of the down payment to the purchase price) and a community property interest of 80 percent (the ratio of the loan to the purchase price). At the time of trial, the fair market value of the house is $175,000 (thus the appreciation is $75,000) and the community has reduced the loan by $2,000. The separate property’s share of the equity in the house is:
Down payment of $20,000 and 20% of appreciation of $75,000 equals $15,000; total separate property equity is $35,000.
The community property’s share of the equity is: 80% of appreciation equaling $60,000 and loan payments of $2,000; total community property equity is $62,000.
Dividing property may result in a reimbursement to one spouse. You or your spouse is entitled to a reimbursement for contributions to the acquisition of community property if you can trace the contributions to a separate property source. This assumes that you have not waived the right to reimbursement in writing. See Family Code §2640; Marriage of Fabian (1986) 41 C3d 440, 444. In Marriage of Walrath (1998) 17 C4th 907, 918, the definition of “property” in Family Code §2640 was found to include not only the original community property to which separate property had been contributed, but also any subsequent property acquired with the proceeds from refinancing the original community property. Note however, that Family Code §2640 does not apply to assets that have not been transmuted from separate to community property status. Marriage of Bonvino (2015) 241 CA4th 1411, 1432 (transmutation requirements of Family Code §852 were not met so as to change to character of husband’s separate property interest in home to community property; therefore reimbursement under Family Code §2640 did not apply); Marriage of Koester (1999) 73 CA4th 1032, 1037 (incorporation of husband’s separate property business was not acquisition of community property; trial court should have applied Pereira formula instead of Family Code §2640).
Rebutting Community Property Presumption
For purposes of dividing property in a dissolution or legal separation, any property acquired by the parties in joint form during marriage, including tenancy in common, joint tenancy, or community property is presumed to be community property. See Family Code §2581. The presumption may be rebutted only by either a clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property or proof of a written agreement between the parties that the property is separate property. Family Code §2581. Marriage of Neal (1984) 153 CA3d 117, 124.
Not every such writing will be sufficient to overcome the presumption. Marriage of Cairo (1988) 204 CA3d 1255, 1261 (quitclaim deed resulting from fraudulent misrepresentations not effective to rebut presumption). When the community property presumption is rebutted, the property is separate property, subject to any applicable community property interest under Marriage of Lucas (1980) 27 C3d 808, 816 (see §5.26). When the community property presumption cannot be rebutted, a spouse who made separate property contributions to the acquisition of the property may nevertheless be entitled to reimbursement. Family Code §2640. See Marriage of Walrath (1998) 17 C4th 907, 918; Marriage of Weaver (2005) 127 CA4th 858.
Dividing Property and Transmutations
When a spouse places separate property in joint title form, the transmutation requirements of Family Code §852 must be satisfied before the joint title presumption of Family Code §2581 applies. Thus, a partnership modification agreement that simply added a wife’s name along with her husband’s as one-third partners was insufficiently clear to change the character of the husband’s existing separate property interest in the partnership. Marriage of Lafkas (2015) 237 CA4th 921, 940.
Property owned as separate property before marriage and that is transmuted to joint title during the marriage is subject not only to the community property presumption of Family Code §2581 but also to the fiduciary duty provisions of Family Code §721. See Marriage of Delaney (2003) 111 CA4th 991. When evidence is offered that one spouse has been disadvantaged by the other in any interspousal property transaction, under the rationale of Marriage of Haines (1995) 33 CA4th 277, the Evidence Code §662 presumption from form of title cannot be applied. Marriage of Delaney (2003) 111 CA4th 991, 997. Thus, if the spouse who had owned the property before marriage alleges undue influence, the burden shifts to the spouse who was put on title to establish that the transfer was freely and voluntarily made with full knowledge of the transaction’s effect on the separate property. Marriage of Balcof (2006) 141 CA4th 1509, 1520; Marriage of Mathews (2005) 133 CA4th 624, 632.
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For more information on California Community Property, click on one of the following links:
Community Property and Quit Claim Deed
Quit Claim Deeds Transmuting Property
Premarital Funds Used For Down-payments