California Partition Law Blog
Dividing property following divorce or dissolution proceedings can be complicated under family law principles. If the property has appreciated in value, this can make dividing it more contentious and complicated.
Under family law, a married couple’s earnings received during marriage are considered community property and are divided evenly at divorce. (Cal. Fam. Code § 770-772.) Property that is held in joint title by the spouses is usually considered community property and will be divided as such, meaning 50/50. (Cal. Fam. Code § 2581.) Property can also be converted to joint title if one spouse held it separately before the marriage. This presumption that the property is community property applies absent a written agreement otherwise. Couples can also execute an Aufmuth agreement which essentially states the spouse contributing separately gets a pro rata share in the increased equity of the property or asset. (Cal. Fam. Code § 852.) This ensures the spouse does not just get a flat reimbursement of the amount they paid.
How is Community and Separate Property Divided?
When apportioning interests, the court will look at the character of payments. This means what the payments can be characterized as and how they will be divided. A payment can have a separate property characterization if it is from a spouse’s separate property. A payment can have a community property characterization if it came from community property. A payment can have separate and community property characterizations if the payment can be traced to two distinct sources of separate and community property. (Marriage of Nelson (2006) 139 Cal.App.4th 1546, 1555.) Interest, taxes, and insurance on payments are disregarded. (Marriage of Ramsey & Holmes (2021) 67 Cal.App.5th 1043, 1051.) Where a community property interest is undisputed both spouses must provide the court with information to allow the court to divide the asset. (Id. at 1052-1053.)
Can a Spouse be Reimbursed for Paying off Community Property?
Under Family Code section 2640, a spouse who contributed their own money to a property can seek reimbursement for those separate contributions. This includes down payments, improvements to the property, or principal payments on the mortgage.
The reimbursement works both ways meaning the community may be reimbursed for its contribution to a spouse’s separate property. Where a home is bought before marriage, and is the spouse’s separate property in title, the community has an interest if it paid down the mortgage using community funds. Any increase in value of the property must be divided accordingly.
In California, a community contribution to a mortgage builds a proportionate share in separate property. (Marriage of Moore (1980) 28 Cal.3d 366, 373.) Following the formula laid out in Moore, the community property share is calculated by looking at the principal debt reduction attributable to community property divided by the purchase price. The balance is considered separate property.
Can a Spouse be Compensated if Property Appreciates?
If the property appreciated, that further affects how much each spouse can get at divorce. Under Marriage of Marsden, the court can credit the spouse for any appreciation that happened before marriage. ((1982) 130 CalApp.3d 426, 438-439.) The increase in value of the property must be calculated based on the value at the time of marriage, not the purchase value.
If the property appreciated but the actual purchase price is being disputed, the ratio of contribution of separate and community property will be calculated compared to the purchase price. (Marriage of Frick (1986) 181 Cal.App.3d 997, 1007-1008.) Marriage of Frick extended these same principles to commercial property as well.
If community property contributions were made to a property that increased its equity value, the community acquires a “pro tanto” interest in that appreciation. (Marriage of Sherman (2005) 133 Cal.App.4th 795, 802-803.) If they did not increase the equity value, the amount reimbursable to the spouse claiming an interest is limited to one-half of the community payments made for those improvements. (Bono v. Clark (2002) 103 Cal.App.4th 1409, 1425.) A spouse can only reimburse through this method if the property is community property. If community property was used to pay a loan taken out to pay off a premarital debt on a separate property residence, the community does not get an interest in that residence. (Marriage of Nelson (2006) 139 Cal.App.4th 1546, 1556-1557.)
A spouse trying to claim separate property interest in a home must be able to prove the payments during the marriage did not come from a community property source. This means the payments cannot come from something like a commingled or joint account, because payments are presumed to be community property unless the spouse can trace them back to separate property. (Marriage of Higinbotham (1988) 203 Cal.App.3d 322, 328-329.)
When does the Community End?
Moore and Marsden only apply up until separation, when the community payments stop. (Marriage of Mohler (2020) 47 Cal.App.5th 788, 790.) This means if one spouse stayed in the home after separation, but they somehow obtained a benefit from living there the spouse out-of-occupation would need to pursue those claims through Watts charges. (Marriage of Watts (1985) 171 Cal.App.3d 366, 374.)
What is an Example?
For example, Julie and Shawn are getting a divorce and bought a home worth $100,000 during their marriage. If Julie and Shawn used their income earned during the marriage, the home would be considered community property. The home could be sold at divorce and its value split evenly between Julie and Shawn.
If Shawn used inheritance from his father to pay for the $10,000 down payment on the home, Shawn would have a claim for reimbursement. Inheritance and gifts are considered a spouse’s separate property. Shawn would be entitled to reimbursement of the $10,000. The rest of the house’s value, $90,000, would be divided evenly between Julie and Shawn.
Alternatively, Julie bought the house before her and Shawn were married and has the home in her name. Julie took out a mortgage on the property worth $100,000. During the marriage, Julie and Shawn paid down the mortgage with their income by $45,000. This allowed the community to build an interest in the property. The home appreciated in value from $100,000 when they got married to $200,000 at divorce.
To find the community share the amount community property reduced the loan is divided by the purchase price so $45,000 divided by $100,000 which is 45%. The capital appreciation attributable to the community is that percentage of the new price or 45% of $200,000 or $90,000. The $90,000 is split between Julie and Shawn because it is community property. The remaining $110,000 is Julie’s separate property.
Conclusion
While spouses are exempt from bringing a dispute for partition of community property, spouses can dispute separate property. The Underwood Law Firm has a team of experienced lawyers who can help resolve your property interest disputes at trial and help you pursue solutions like partition actions. We are here to help.