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?
What Is the Moore Marsden Formula?
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.
What About Transmutations?
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.
What to learn more about 2640 reimbursements?
What to learn more about transmutations?
Only Calculate the Moore Marsden Claim Up to Point of Transmutation
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 for mortgage debt
payment - 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. It still apples to determining the
other party's 2640 reimbursement at the time of transmutation.
Moore Marsden and Residence Improvements
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. If the source of the improvements are the
community dime, rather than the owner's SP, the value of those improvements
may need to be reimbursed.
However, they are not reimbursed as part of a Moore-Marsden calculation. Moore Marsden reimbursements are limited to issues relating to reduction
of debt on real property (mortgages), but also include a share of appreciation,
as part of the "acquisition" of that property. Capital improvements
are not considered an "acquisition."
Instead, a separate line of cases empowers courts to reimburse the community
estate (of which each party owns one-half) for at least the dollar-for-dollar
value of the contributions (i.e., installing an irrigation ditch:
Marriage of Wolf (2001) 91 Cal.App.4th 962), but possibly for the enhanced value to the
property that the improvements create, if that sum is greater than the
out of pocket costs (Marriage of Frick (1986) 181 Cal.App.3d 997). Thus, the extent of the reimbursement may
turn 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). Many improvements (or repairs) 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.
What happens when one spouse's SP is used to make some form of payment
on the other spouse's SP, whether for mortgage reduction or improvements?
It may well be treated as a gift.
Marriage of Camire (1980) 105 Cal.App.3d 859.
And, what happens where the CP improvements for which a reimbursement right
does exists were made prior to a transmutation, i.e., before the other
spouse comes to be added to title? In those situations, the party who
owned the separate property is entitled to a
Family Code section 2640 credit for their equity in the property on the date the other becomes
a joint owner. That will require a Moore Marsden calculation as of the
transmutation date, but it won't take the CP improvements into account.
Whether these get reimbursed at all would seem to depend on whether the
property has continued to increase in value after becoming joint. It will
be within that increase that the prior-to-transmutation improvements get
reimbursed. If there is no increase, or even a decrease, then the community
ultimately made a bad investment. Remember, these types of reimbursements
only come from the asset itself, and not from some other unrelated property or asset.
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.
Here is a link to more articles discussing Moore-Marsden claims!
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Author: Thurman Arnold