In general, property acquired before marriage is the separate property of the spouse who acquired it. However, the situation becomes more complex when there is a marital home purchased before marriage by one of the spouses, the couple later moved into it and the couple used community funds to pay the mortgage and possibly make improvements.
In the 1980s, case law was established which gave a rule for computing the separate and community property interests in such a home. This rule or formula is named the Moore Marsden Rule, after the two California appellate cases which gave rise to it.
This rule is used by a court when determining the relative ownership interests in a marital home purchased before marriage.
Of course, when you work out your own settlement, perhaps with the assistance of a divorce mediator, you are not required to use the rule. If you would like to obtain a Moore Marsden calculation, a Certified Divorce Financial Analyst can prepare one for you.
Moore Marsden Data Inputs
The data inputs to the calculation are as follows:
- home purchase price;
- amount of down payment made with separate property funds;
- amount loan principal pay-down made with separate funds;
- fair market value of the home at date of marriage;
- amount of loan principal pay-down made with community funds;
- fair market value of the home at time of division.
It’s often challenging to obtain this information when the property was purchased a long time ago. Real estate agents and mortgage companies may be able to help. Sometimes you may have to use one or more estimates.
Note that other home-related ownership costs such as mortgage interest, real estate taxes and homeowners’ insurance are not considered in the calculation.
When a court is applying the Moore Marsden rule, the “time of division” is the date of the trial (or a very recent date). It’s not the date of the couple’s separation.
As an example, say a spouse bought a house for $500,000 before marriage with a $100,000 down payment and a mortgage of $400,000. Prior to marriage, the spouse paid down the mortgage principal balance by $10,000. The value of the house at their date of marriage was $700,000. The couple has paid down the mortgage principal balance by a further $30,000 and now they are getting a divorce. The value of the house is now $1,000,000. The equity in the house is now $640,000 ($1,000,000 minus the outstanding mortgage balance of $360,000).
The Moore Marsden formula says that the community property interest is just $48,000 and the separate property interest of the purchaser-spouse is $592,000.
This is fairly typical. If the original mortgage has not been refinanced during the marriage, the separate property interest is usually significantly more than the community property interest.
Refinance of a Marital Home Purchased Before Marriage
If there has been a refinance during the marriage, the picture often changes dramatically. This is because the original separate property loan usually gets paid off by a new community property loan. California case law says that the community should receive full credit for paying off this loan.
When there has been a refinance, the Moore Marsden calculation should be done as of the date of the refinance. The result can then be applied to home value appreciation since the refinance.
In the example above, let’s say the couple refinanced the remaining mortgage balance of $360,000. The market value of the house at the time of the refinance was $800,000. So home equity at that time was $440,000.
The Moore Marsden formula says that the community property interest at the time of the refinance is $108,000 and the separate property interest of the purchaser-spouse is $332,000.
In the same example, the house has appreciated from $800,000 to $1,000,000 since the refinance. For simplicity and ease of comparison, let’s assume that the refi mortgage loan balance is still $360,000. So there is now $640,000 equity in the home.
Moore Marsden apportions $264,000 of this to the community and $376,000 as the separate property of the purchase-spouse. A much better result for the community than the no-refinance caluclation!
Home Equity Loans and Improvements
Home equity loans are normally ignored in a Moore/Marsden analysis unless the proceeds were used to make improvements to the home. The cost of improvements and whether paid by the community or by the purchaser-spouse, however, can be taken into account.