A common analysis often done in divorces is a Moore Marsden calculation.
This is applicable when a spouse bought a house before marriage, and the married couple later moved into the house and began paying the mortgage.
In a divorce, each of a couple’s assets and debts needs to be listed out and fully disclosed. Each such asset and debt must be characterized as either the separate property of one spouse or the community property of both spouses.
Sometimes an asset or debt is partially separate and partially community. This is common with residential property purchased before marriage. When this is the case, the question arises as to how much of the home’s value is separate and how much is community.
The Moore and Marsden California appellate cases addressed this issue and came up with a standardized approach to resolve it. Its formula is a rule to be used by the court when it has to decide matters of this nature.
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.
Moore Marsden Calculation
If you would like to obtain a Moore Marsden calculation, a Certified Divorce Financial Analyst or perhaps another divorce professional can prepare one for you.
The aim of the calculation is to come up with the separate and community property interests in the home. It requires the following pieces of information:
- home purchase price;
- the down payment made with separate property funds;
- amount of loan principal paid down with separate funds;
- fair market value of the home at the date of marriage;
- amount of loan principal paid down made with community funds;
- fair market value of the home at time of division.
When a court is applying Moore Marsden, the time of division is the time of the trial, i.e., a very recent date – not the couple’s date of separation.
Let’s take an example:
– purchase price: $500,000;
– down payment: $100,000;
– mortgage: $400,000;
– separate funds principal pay-down before marriage: $10,000;
– market value at date of marriage: $700,000;
– community funds principal pay-down since marriage: $30,000;
– current market value: $1,000,000.
According to the Moore Marsden formula, the $640,000 equity in the house is apportioned as follows:
- $48,000 is community property and
- $592,000 is the separate property of the purchaser-spouse.
When the original mortgage has not been refinanced during the marriage, the separate property interest (according to Moore Marsden) is usually much greater than the community property interest.
Moore Marsden for Refinanced Homes
If the home has been refinanced before or after the marriage or both, that complicates the analysis. If there has been a refinance during the marriage, the result is usually much different than in the example above. This is because the original separate property loan usually gets paid off by a new community property loan. California case law says the community should receive full credit for taking on this liability.
This Moore Marsden calculation should be done as of the date of the refinance (rather than the current date). It determines the community and separate property interests as of the date of the refinance. These then can extrapolated to the current date.
In the example above, let’s use the same figures but add:
– house market value at the time of the refinance: $800,000;
– refinance loan amount: $360,000.
At the time of the refinance, Moore Marsden apportions the $440,000 equity in the house as follows:
- $108,000 to the community and
- $332,000 to the purchaser-spouse.
In our example, the home has appreciated since the refinance from $800,000 to $1,000,000. Let’s assume, just for consistency, that there is now $640,000 equity in the home. This implies that the refi loan balance is still $360,000.
Moore Marsden apportions:
– $264,000 to the community and
– $376,000 as the separate property of the purchaser-spouse.
This is a much different result from the no-refinance example above. The community property interest has increased from $48,000 to $264,000.
Complicating Factors
Often there are complicating factors such as multiple refinances, home improvements and home equity loans. A Certified Divorce Financial Analyst can assist you in considering how these can be taken into account in the analysis.
