Recent Posts in Moore Marsden Analysis Category

"(a) A premarital agreement is not enforceable if the party against whom enforcement is sought proves either of the following:

* * *

(c) For the purposes of subdivision (a), it shall be deemed that a premarital agreement was not executed voluntarily unless the court finds in writing or on the record all of the following:

(1) The party against whom enforcement is sought was represented by independent legal counsel at the time of signing the agreement or, after being advised to seek independent legal counsel, expressly waived, in a separate writing, representation by independent legal counsel.

(2) The party against whom enforcement is sought had not less than seven calendar days between the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.

(3) The party against whom enforcement is sought, if unrepresented by legal counsel, was fully informed of the terms and basic effect of the agreement as well as the rights and obligations he or she was giving up by signing the agreement, and was proficient in the language in which the explanation of the party's rights was conducted and in which the agreement was written. The explanation of the rights and obligations relinquished shall be memorialized in writing and delivered to the party prior to signing the agreement. The unrepresented party shall, on or before the signing of the premarital agreement, execute a document declaring that he or she received the information required by this paragraph and indicating who provided that information...."

Notice how these provisions are almost shouting 'independent legal counsel.'  It is rare to see a phrase repeated so often within the same code section. 

So examine whether your agreement, and the required separate writing, seem to address these requirements.  Also, check to see whether the other conditions for enforceability are met.  There may be other reasons why your Prenup will not be enforced, as where undue influence was exerted to obtain your signature (notice the seven day waiting period, which is intended to overcome the social pressures where a wedding date is looming).  But you would be ill-advised to embark upon a challenge to the agreement without legal counsel this time around; don't compound the problem.

A final comment:  Setting aside the prenuptial agreement may only have a limited affect upon the status of the house.  For instance, the rules relating to transmutations and reimbursements still apply.  I have written about those elsewhere in this Blog, but if the house was acquired by your wife as her separate property independently of the Prenup it remains her separate property even if the agreement is voided.  However, if there was a mortgage and it was paid down with her earnings during marriage the cancelation of the Prenup may benefit you because the community will thereby gain a Moore Marsden reimbursement right in the principal pay down and appreciation.

Again, seek out an experienced family law attorney.  And, I always urge that people consider mediating these types of family law disputes.

T.W. Arnold
http://www.ThurmanArnold.com

Q.  I understand that Moore Marsden has something to do with reimbursing the community estate for the mortgage payments we made on the house my wife owned prior to our marriage, but we spent some the monies we saved during our marriage on improvements to the house.  Do I get any of this back?

A.  The Moore Marsden formula typically deals with what happens to the equity in property owned in the name of one spouse alone - in this case a house - where during marriage community property (i.e., either spouse's earnings) is used to make mortgage payments.  Where these mortgage payments are a combination of principal and interest, and not interest only, their net effect is to increase equity by reducing principal.  Over many years the amount of principal reduction can be substantial.  In effect the spouse who solely owns that residence is benefiting by the community's contribution.  This is potentially a kind of breach of fiduciary duty, giving rise to reimbursement rights.  Over time this right of reimbursement to the community grows, but it only applies to increases in equity.  There is no right to be reimbursed for interest, taxes and insurance payments.  I have given an example of how these Moore Marsden interests are calculated here.

Sometimes during marriage after a period of community payments on the separate property mortgage of one spouse, spouses or domestic partners transfer title to the property into joint names (often where there is a refinance and the lender requires it) so that now both spouses are on title to what was previously one spouse's separate property.  This is called a transmutation.  Under Family Code section 2581 the property is deemed "acquired" during marriage and so the house now presumptively becomes community property.  Use our search engine to find more information about transmutations.  Later, upon dissolution or legal separation these interests need to be separated out and accounted for.  In such cases several levels must be analyzed:

First, a transmutation (adding a spouse to title to what was previously separate property) must be free and voluntary, and there is a presumption that the spouse who comes onto title did so through some form of undue influence.  This may or may not at all be true, but it is the burden of the later titled spouse to establish the absence of undue influence.  If there was undue influence, then the title change can be set aside and the property remains separate.  If the title change is set aside, Moore Marsden applies because the property will be deemed to have always been the separate property of the first spouse but the community will still be entitled to a ratio of equity reimbursements. 

If there has been a valid transmutation, then the first spouse is still entitled to be reimbursed for the value of their separate property contribution to the community (absent an express written waiver of this right of reimbursement).  This is determined as of the date of the transmutation, and is governed by Family Code section 2640.  Moore Marsden may still apply to determining the amount of this 2640 reimbursement.  For example, say on the date of marriage Wife owned the property in her name and the mortgage owing is $100,000.  Assume at the date Husband is added to title the mortgage has been paid down to $80,000.   Also assume the value of the property remains the same at $200,000.  Here there has been an increase of $20,000 in equity and the community must be reimbursed. On the date Husband goes on title $100,000 of the equity is Wife's pure separate property - the house was worth $200,000 and the mortgage was then $100,000.  Wife is entitled to a 2640 reimbursement of $100,000.  However, both H and W have a community interest in that $20,000 of principal reduction.  Moore Marsden will be used to determine the value of each of their shares (often there has been a change of value between the two dates - assuming the house appreciated, then they also share in different proportions in the equity increase).  Wife's $100,000 2640 reimbursement will be increased by her share of the community increase.  If there has been appreciation, a ratio is determined that fixes the amount of community reimbursement due.

In contrast, if the mortgage had been interest only up to the date of the transfer (with no capital improvements), then as of the date of this transfer the community would have no Moore Marsden reimbursement and Wife's 2640 claim would be 100% of the home equity on that date.

Once both parties jointly own the property, Moore Marsden will not apply to the increases or contributions that occur thereafter (unless there is a future transmutation back to one party or the other alone) although it may later be used as illustrated above to determine 2640 credits on the date the other spouse goes on the deed.  This is because the formula is only used to value reimbursements to the community where community money improves or increases the value of one spouse's separate property - once parties are on title, the residence becomes community property subject to a separate property reimbursement instead of separate property subject to a community reimbursement.

A common situation occurs when one spouse holds property in their name alone but the spouses together, or the other spouse, contributes monies to remodels or improvements.  The value of those improvements may need to be reimbursed - either to the community (where the improvements were paid by both from earnings and accumulations during marriage) or to other spouse (where the untitled spouse pays for the improvements from their own separate property, i.e., premarital savings).

Whether or not there is an actual right of reimbursement to the community improvements depends first on whether those improvements actually increased the value of the home. If community funds are used to buy a solid gold toilet, that toilet may have little impact on the value of the home per se (the toilet is still worth whatever it is worth).  Some improvements don't increase value.  Another example might be an improvement that loses value over time, like new carpeting.  This is to be compared with adding more square footage by enlarging the house. Expert testimony may be required to prove the improvements increased value and to what extent.

But the reimbursement for capital improvements is not dollar for dollar.  Instead a modified Moore Marsden analysis must be performed which determines the community property interest in the equity appreciation during marriage, taking into consideration the extent to which the improvements increased value.

Incidentally, when there is a 2640 reimbursement to the first spouse, this comes off the top from any equity in the house - which means there is there no equity remaining after this reimbursement, there is not community equity left to reimburse.

Complicated?  You bet.  There are so many possible scenarios and it is hard to speak to these concepts except in generalities.  Often a forensic accountant with Moore Marsden experience will need to be engaged.  Since the fair market value of property may need to be determined at various points of time (for instance, the date of marriage, the date the new spouse comes on title, and the date of division), expert opinions of value of the real estate may also be required.  It may be problematic to value property as of some long ago date.

My hope is here is to introduce you to the concepts so that you may be somewhat conversant with them.  Find an experienced family lawyer to assist you!  They will know local experts who can help with the analysis.

Q.  My wife and I separated June 2009. When we purchased our home in March of 1998 (married December1994), she used part of a pre-marriage inheritance from her grandmother to help with the down payment. I have been paying the mortgage since inception. Will she get her inheritance back in our divorce?

Q.  Can you please help.  I understand a Moore-Marsden analysis needs to be performed on my house in my pending divorce, but my attorney can't explain it to me. 

Frederic:

Here is an illustration of how the calculation works.  Please see my FAQ on Moore Marsden generally.  As you can see, it is complicated. 

You will need to get some further data: we need to the payoff balances on the date of marriage; the date of the transmutation (when your wife went on title), the date of separation, and the date of trial - which is the final valuation date - once it is set. 

If the transmutation is set aside (based upon a presumption of undue influence that your Wife violated FC section 721(b) which she has the burden of rebutting by establishing a fair consideration for the title change) - it will be a straight Moore-Marsden plus Family Code section 2640 or Epstein reimbursements for certain post DOS expenses.  Therefore, one scenario is:

Assuming                                                                $   54,875     DP and                                                                                6,836     
pre-marital principal reduction (you will need
the actual pay-off information)                                      25,125     pre-marital appreciation (which you can establish with you own
testimony based upon your opinion of value as an
owner) and                                                                (20,197)     principal reduction from the DOM to the DOS (again you will want
to have the actual pay-offs on the alternate dates
but am going with your given assumptions here)
then:                                                                         $54,875 [DP] PLUS $89,803
[SP Loan of $110,000 minus $20,197 CP payments]
= $144,678 DIVIDED BY $164,875 [purchase price]
= 's a 87.75 SP Interest

and                                                

$20,197 divided by $164,875="12.25%" CP interest

NEXT                                                                 $54,875 [DP]
                                                                                   6,836                                   
---  (plus post DOS loan payments which I don't
see broken out so assume zero here)                         $61,711 PLUS                                                                         25,125  (premarital appreciation) PLUS                                                                       315,900     [87.75% of post-DOM appreciation to present assuming $550,000 today
and not the $500,000 equals $550,000 less 164,875
less $25,125="$360,000]" - appreciation percentage of H's SP interest ='s $402,736 (H's SP share)

COMMUNITY:  $20,197 plus 12.25% of 360,000=" $44,100"
plus 20,197="$64,297" TOTAL CP INTEREST BEFORE REIMBURSEMENTS
divided by 2 = $32,148 equalization to W

EXCEPT at a minimum you get FC section 2640 reimbursements for the special assessments meaning deduct one-half of the $11,597 paid out from her equalization.

i would have to do another analysis assuming a valid transmutation.

I hope this helps more than confuses!