During a California divorce, one spouse may be entitled to be reimbursed when the other spouse has exclusive use of community property or when one spouse makes payments on a community debt.

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Reimbursements

Reimbursements for use of community property or payments on community debts are called Watts Charges and Epstein Credits. Although there are other classifications for reimbursements, these are the two most common to a divorce action.

Divorce Reimbursements

You may be entitled to divorce reimbursements for payments you made during your marriage.

Watts Charges

Reimbursements can come in the form of Watts Charges. which are charges one spouse incurs after date of separation for their exclusive use of community property. When one spouse has exclusive use of a family home or vehicle, the community will be entitled to reimbursements for the value of this use. The reimbursements come in the way of a “charge” against their portion of the community property they are to receive.

Claims for Watts charges, for reimbursements to the community for post-separation use of community assets, are generally disfavored by the court unless the spouse seeking credit has given prior written notice to the other spouse of their intent to seek such a credit. Claims will ordinarily be considered retroactive only to the date of such actual written notice of the claim.

Epstein Credits

Reimbursements can be credits that a spouse is to receive from community property for the payment of a community debt using their separate assets. When one spouse pays on a community loan or a community credit card debt they are entitled to a credit from the community. The spouse who wants to claim Epstein credits has the burden of proof regarding the community nature of the obligation, the balance on date of separation, the post-separation payment and the separate property source of the payment.

Frick Credits

The community has a right to divorce reimbursements when a spouse uses community property to pay his/her separate property obligations.

Child Support Payments

One spouse can request reimbursements when the other spouse is using community property to make child support payments or spousal support payments. The paying spouse’s obligation is a separate debt resulting from from another relationship, prior or during marriage.

One Spouse’s Tort Liability

Community property used to satisfy one spouse’s tort liability or student loan debt.

Reimbursements for Premarital Funds Used to Start a Business

The spouse who contributed the funds to start a business during marriage will be reimbursed provided they can prove (generally by tracing via financial records) that the separate funds went into the purchase or creation of the business. A common scenario is when separate funds (funds owned before the marriage, acquired during the marriage by gift or inheritance, or after the date of separation) are used to start a business.

Under California Family Code 2640(b), contributions made on or after January 1, 1984 will be reimbursed (again, to the extent that the contributing spouse can trace) unless the contributing spouse has made a written waiver of their right to reimbursement – a transmutation. The amount reimbursed is the amount contributed, without interest. This applies not only to down payments, but also to the purchase but payments for improvements, or payments on any loan principal (but not interest payments, or payments for taxes or insurance). The reimbursement is capped at the amount of the equity in the business at the time of divorce.

Reimbursements for Separate Funds Used to Acquire a Joint Marriage Asset

The spouse who contributed the funds will be reimbursed in a divorce action, provided they can prove (generally by tracing via financial records) that the separate funds went into the asset. A common scenario is when premarital funds (funds owned before the marriage, or acquired during the marriage by gift or inheritance) are used to acquire property that is now in joint title.

Under California Family Code 2640(b), contributions made on or after January 1, 1984 will be reimbursed (again, to the extent that the contributing spouse can trace) unless the contributing spouse has made a written waiver of their right to reimbursement – a transmutation. The amount reimbursed is the amount contributed, without interest. This applies not only to down payments, but also to payments for improvements, and payments on the principle (but not interest payments, or payments for taxes or insurance) on a loan that financed the purchase or improvements. The reimbursement is capped at the amount of the equity in the property at the time of divorce.

Reimbursements for Separate Funds Used to Pay Community Debts

Most notably is one spouse who uses separate funds to pay joint debts after the parties have separated. Generally the paying spouse will be reimbursed. This most commonly occurs where a person pays from their separate income (such as employment income earned after separation) makes payments on an existing community obligation (such as a mortgage on a parcel of real estate, or a balance on credit card). There are exceptions, however—for example, when the payments are made to discharge a spousal or child support obligation; or when the payments were to preserve an asset (like a house or car) that the person is using, and the amount being paid is not significantly greater than the use value of the asset, such as its rental value. However, there may be no reimbursement for mortgage payments on the residence when the paying spouse is living in the house after the parties separate.

The spouse who contributed the funds will be reimbursed in a divorce action, provided they can prove (generally by tracing via financial records) that the separate funds went to payment of a community or joint debt. A common scenario is when one spouse uses separate funds (funds acquired before the marriage, during marriage by gift or inheritance, or after the date of separation) to pay on a community or joint debt.

Under California Family Code 2640(b), contributions made on or after January 1, 1984 will be reimbursed (again, to the extent that the contributing spouse can trace) unless the contributing spouse has made a written waiver of their right to reimbursement – a transmutation. The amount reimbursed is the amount contributed, without interest – one half of the community debt. The reimbursement is capped at the amount of the equity in the property at the time of divorce.

Reimbursements for Separate Funds Used for the Other Spouse Acquisition of Separate Property

This most commonly occurs when a person owns real estate before marriage, and after marriage the other person uses their separate property funds to make payments on the mortgage, or to pay for improvements on the property. Again, the reimbursement is only to the extent the contributor can trace the funds, the reimbursement is without interest, it is given only if there was no written waiver of the reimbursement right, and it applies to principle payments but not to interest payments or taxes or insurance. The statute providing for reimbursement for this type of reimbursement (where funds are used for the acquisition of the other party’s separate property) was enacted relatively recently, and it is unclear whether it applies to contributions made before January 1, 2005.

Separate Funds Used for Living Expenses During Marriage

There is no reimbursement for one spouse’s use of their separate funds during marriage for living expenses. If a spouse uses their separate property funds to pay for such things as medical expenses, vacations, gifts, property insurance, property taxes, clothing, utilities, or other living expenses, the law presumes these were gifts to the community, and there is no right of reimbursement.

Reimbursement for Community Funds Used During Marriage to Pay One Spouse’s Premarital Debt

The community will generally be reimbursed for the payments (which is another way of saying the party who incurred the debt will reimburse the other party for one-half the amount paid). This is true regardless of which spouse applied the joint funds to pay the debt, and regardless of whether the debt was paid in whole or in part. However, the reimbursement claim must be made within three years after the party first acquires knowledge of the facts giving rise to the reimbursement right. And, the claim must be made in the marital dissolution action (assuming the three years have not expired) or it is waived.

Reimbursements for Education Payments

The community may be reimbursed for funds spent for education or training of one spouse that substantially enhances that person’s earning capacity. The payments include such things as tuition, books, fees, transportation, supplies, as well as payments on a student loan even if the loan was incurred prior to marriage. Ordinary, day-to-day living expenses while a student are not reimbursed. There is exception to the reimbursement right. Reimbursement may be eliminated or reduced if the community has already benefited substantially from the education (a benefit which is presumed to have occurred if the payments were made over ten years ago). Another exception is if the education has substantially reduced a party’s need for spousal support.

Reimbursements for Community Funds for a Prior Marriage Support Payments

The community is reimbursed provided the spouse who incurred the obligation had their own separate property available to make the payment, but used community funds instead. The community’s right to reimbursement must be exercised within three years after the party claiming the reimbursement has acquired knowledge of the facts giving rise to the right. And, the claim must be made in the marital dissolution action (assuming the three years have not expired) or it is waived.

Reimbursements for Community Funds Used to Pay on a Personal Injury Claim

There is a right to reimbursement from the damages received in a personal injury claim when the personal injury damages are the separate property of the injured party, and expenses connected with the injury are paid with the other spouse’s separate property or with community property. Be aware that you must consider the time of the injury and the facts surrounding the injury to determine whether or not the damages are characterized separate property of the injured party or of the community (belonging to both spouses but often allocated to the injured party in a divorce).