It often arises that one spouse had a home before marriage that the married couple later moves into. In a divorce, how much of the value of the home is the separate property of the spouse who bought it? And how much is community property? California case law attempts to answer this question through the Moore Marsden formula. But this formula doesn’t address improvements that may have been made to the home.
The Moore Marsden formula only deals with the original down payment on the home and the payment of mortgage principal. It doesn’t deal with improvements or major repairs that may have been made. What does the law have to say about such improvements or repairs?
Improvements Made Before Marriage
The Moore Marsden formula requires establishing the approximate value of the home at the time of the marriage. All the equity in the home at this time is considered to be the separate property of the spouse who bought the home.
The value of any and all improvements or repairs to the home made by the purchasing spouse prior to marriage should be reflected in the value of the home at the time of marriage. Therefore, the purchasing spouse would not have a claim in the law for a credit or for reimbursement of monies spent on these pre-marriage improvements. The net effect of these expenditures would be implied in the results of the Moore Marsden calculation.
Community Improvements Made After Marriage
A community interest in the home was established when the couple began using it as their marital home and began paying the mortgage out of community funds.
Any improvements paid for with community funds may have been done either:
- before the other spouse was added to the title (if this was ever done) or
- after the other spouse was added to the title.
In either case, the community may have a claim for reimbursement for the improvements.
In the former, the extent of possible reimbursement seems to depend on whether the property has increased in value after the community interest was established. It will be within that increase that the improvements may get reimbursed. There is no established formula in the case law for the amount of reimbursement.
If there is no increase in value, or even a decrease, then the community made a bad investment. And the community is not entitled to reimbursement.
Sometimes a transmutation occurs in which the separate property of one spouse becomes the community property of both spouses. This typically occurs when the mortgage is refinanced in the names of both spouses and the other spouse is added to the title.
For improvements paid for by community funds after such a transmutation, case law empowers courts to reimburse the community for at least the dollar-for-dollar value of the monies spent, but possibly for the enhanced value that the improvements created, if that amount is greater than the out-of-pocket costs. Thus, the extent of the reimbursement may depend on whether those improvements increased the home’s value.
In either situation above, if the matter is before a judge, expert testimony may be required to prove the improvements increased value and to what extent.
Legal Advice
As you can see, this is very complicated. There are many possible scenarios. And the law relating to community property vs. separate property is the most complicated and detailed part of divorce law. I’ve simply tried to present here a broad overview. You may well benefit from discussing the matter with an experienced family law attorney and/or a financial professional with extensive experience of these matters.
Often a couple can work out a complete divorce settlement agreement, perhaps with the help of a divorce mediator. When doing so, the couple gets to decide how much if any weight they give to what the law has to say about matters such as the one discussed above.
