Q. I am not on title to a home my husband owned before we married but we paid the mortgage for 7 years. If we divorce, do I have any interest in it?
There is an important concept under California Law involving what is generally
known as "Moore-Marsden apportionment." It applies to a common
situation where a home is acquired before marriage, title is in the name
of the acquiring spouse alone, and during the marriage and up to separation
or divorce filing the mortgage is paid down with community funds. Please
note - this concept applies whether you went on title or not after the
marriage (i.e., subsequent transmutation), but may be your only remedy
if you did not.
Where this occurs the community estate acquires a legal, reimbursable, interest in what would be otherwise be entirely the separate property of the titled spouse IF community funds (earnings of either spouse, for instance, or both) are used to make the mortgage payments.The idea is that joint funds are being used to benefit a separate property interest, i.e., the separate property equity. Many legal scholars (and the courts) consider this to be a breach of fiduciary duty - that whenever one or the other spouse's separate property interests are increased with community funds, or community time, skill, and efforts of either spouse during the marriage, the community is disadvantaged and that this disadvantage violates the statutory duties of the parties that place the party's joint interests above their separate interests.
The formula for apportionment is that the community acquires a pro tanto (dollar for dollar) interest in the equity in the property, in the ratio that principal payments on the purchase price made with community property bear to payments made with separate property. Hence, any increase in value (appreciation) must also be apportioned between the separate property and the community property estates upon separation or dissolution.
Note that this only applies to separate property owned prior to marriage with a mortgage that was paid during marriage where an equity position has been increased. For instance, if a mortgage exists but it is an interest only mortgage, payments during marriage do not reduce principal. Therefore, the separate interest of the owner spouse is not improved because the debt remains exactly the same. As a general rule, the amounts paid for interest, taxes, and insurance on the house are disregarded since that portion does not to contribute to the capital investment.
Also, it assumes that the mortgage was paid with joint (community) funds, or that the funds used were so commingled that the "separatizer" is unable to trace them to a separate property source (meaning they don't have records showing where each payment was made or are unable to provide a recapitalization of the source of the funds). If your husband reduced the mortgage throughout the marriage but he did it with an account that was his separate property then the community would not have this reimbursement right.
Finally, Moore Marsden does NOT itself give a right of reimbursement for
improvements made to one party's separate property residence (or other
real property) so that these improvements are not part of a M-M calculation.
Instead, the joint funds (i.e., CP monies) that paid for that room addition
may be reimbursed under another line of cases (Marriage of Frick (1986) 181 Cal.App.3 997). Essentially, the community estate can claim
the greater of (1) the cost of the community improvements or (2) the enhanced
value resulting from those improvements. In deciding which is the appropriate
remedy, compare the increase in value that results from adding square
footage to a home, as opposed to adding toilets made of gold or more common
marble counter tops.
The Moore Marsden formula requires a number of bits of information at important points in time to be properly calculated. These include:
- what was the original purchase price
- what was the original mortgage and downpayment
- what was the property worth at the date of marriage (DOM)
- what was owed to the lender at that time
- what was the property worth at the date of separation
- what was owed at that time
- what is the property worth on the date of the calculation (i.e., the trial date) and
- what is the principal pay-off at that time?
This is an example of why family law and divorce cases can become complicated
and expensive. Obtaining these records, particularly if you are the 'out
spouse' can be difficult, and sometimes a forensic accountant is the
best option for calculating these apportionments. You need an experienced
family law attorney for these types of matters.
In your case, with a lengthy marriage, you have significant Moore-Marsden entitlements. However, these may be adversely affected by the crash in the real estate market since so much equity has evaporated. In any event, we need the numbers outlined above in order to calculate the reimbursement due to the community.
Author: T.W. Arnold, III