You owned a home before marriage. You used salaries, bonuses, commissions, or other income that you or your spouse earned during marriage to pay the principal on loans that were used to acquire the house and are secured by the property. You don’t have a prenuptial or postnuptial agreement. You didn’t transfer title of your house to your spouse or partner during marriage. Now, you’re legally separating or getting a divorce in California, and your spouse has alleged that there is a community property interest in your separate property house.
Did your spouse acquire a community property interest in your separate property house?
A house that a spouse owns before marriage or inherits or receives as a gift during marriage is separate property under California Family Code § 770 however, the community can acquire an interest in the home in certain circumstances. If a spouse uses community property funds to pay the principal mortgage payments on the separate property house and in so doing, contributes toward the property’s acquisition, the community acquires an interest in the house. The community also can acquire an interest in the separate property house if a spouse or the spouses refinance the original mortgage with the proceeds of a community property loan. (In re Marriage of Branco (1996) 47 Cal.App.4th 1621)
These rules apply even if title to the property remains in the name of the original owner, but might be refuted with a transmutation agreement or interspousal transfer deed or proof that a loan used to refinance the original mortgage during marriage was not a community property debt because the intent of the lender twas o rely solely on the separate property of the home owning spouse.
How much of an interest does the community acquire in the separate property home?
The Moore-Marsden rule is the formula a judge will use to apportion, and determine the separate and community property interests in a separate property house.
The California Court of Appeals’ opinions for Marriage of Marsden (1982) 130 CA3d 426 and Marriage of Moore (1980) 28 C3d 366, provide in part:
If community property is used to reduce the mortgage principal or increase the equity in a spouse’s separate property house, the community acquires an ownership interest in the home; and
Ultimately, the disposition of the house is a reflection of the community and separate property percentage and cash interests in the house at the time of a trial.
California Family Code Section 760 defines community property as follows:
Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in California is community property.
California Family Code Section 770 defines separate property as follows:
(a) Separate property of a married person includes all of the following:
(1) All property owned by the person before marriage.
(2) All property acquired by the person after marriage by gift, bequest, devise, or descent.
(3) The rents, issues, and profits of the property described in this section.
In lay-speak, the court’s opinions in Marriage of Moore and Marriage of Marsden and California Family Code Sections 760 and 770 mean:
- If a person buys a house before getting married and doesn’t legally transmute (transform) the character of the house from separate to community property by way of a prenuptial or legal transmutation agreement or Deed, the house is separate property
- Unless a couple has a premarital or postnuptial agreement stating otherwise, spouses’ salaries, bonuses, commissions, etc. earned during marriage are community property
- If asked, a California family law judge must divide community property equally in a Legal Separation or Dissolution of Marriage or Domestic Partnership.
- If salaries, bonuses, commissions, etc. earned by a spouse during marriage are used to reduce the mortgage principal or increase the equity in a spouse’s separate property house, the community acquires an ownership interest in the home
- The formula for calculating the community property interest in the separate property house at the time of trial (or settlement conference) is in the California Court of Appeals opinion for Marriage of Marsden (1982) 130 CA3d 426 – it’s often referred to in the trade as Moore-Marsden.
Step One: Gather the following relevant facts:
- Date of marriage
- Date of separation
- Date of house purchase
- Purchase price
- Title on Deed
- Type of Deed
- Amount of down payment
- Down payment paid by spouse making separate property claim
- Source of down payment (i.e. premarital income, inheritance)
- Principal mortgage balance on the date of purchase
- Secondary loan balance(s) on date of purchase
- Amount of principal paid by the homeowner spouse before the date of marriage
- Amount of principal paid by the homeowner spouse after the date of separation from a separate property source
- Amount of principal paid with community property funds from the date of marriage to the date of separation
- Amount of principal paid with community property funds from the date of separation to the date of trial or settlement
- Premarital home appreciation (value of home on date of marriage minus purchase price)
- Value of home at the time of trial
- Appreciation of the house from the date of marriage through the date of trial or settlement
- Refinance amount(s) and records if property refinanced during the marriage
Step Two: Calculate the percentages that determine the separate and community property interests in the appreciation of the home after the date of marriage and before trial:
Separate property percentage = (Down payment + (separate property loan – community property payments))/ divided by the purchase price)
Community property percentage = (community property payments that reduced the separate property loan(s) principal/ divided by the purchase price)
Step Three: Calculate the following cash interests:
Separate property cash interest = separate property down payment +principal loan payments paid with the separate property before marriage +principal loan payments paid after separation with separate property funds + all premarital appreciation + separate property percentage of the appreciation during marriage through the date of trial
Community property cash interest = community property principal loan payments + community property percentage of marital appreciation
Step Four: Calculate the cash interests to award to the separate property homeowner and his/her spouse or partner
Award to separate property homeowner spouse = Separate property cash interest + one-half of community property cash interest
Award to non-homeowner spouse = one-half of community property cash interest
To illustrate, here are the facts, formula, and outcome or disposition in Marriage of Marsden (1982) 130 CA3d 426:
Facts: H bought a home before marriage for $38,300. H paid $8,300 down and executed a $30,000 purchase money trust deed loan for the balance. Title was taken solely in H’s name. At the time of H’s marriage to W (nine years after purchasing the residence), H had made a total of $7,000 loan payments that reduced the loan principal balance and the property had increased in value to $65,000 ($26,700 premarital appreciation). H used his post-separation earnings (separate property) to further reduce the loan principal by an additional $655. The balance of the loan at the time of trial was $13,145.
During marriage and prior to the date of separation, the community made$9,200 in payments that reduced the principal loan balance. At time of trial, the property was worth $182,500 ($117,500 appreciation between date of marriage and date of trial).
Separate property percentage: 75.98% = ($8,300 down payment + ($30,000 separate property loan – $9,200 community property payments)) /divided by the $38,300 purchase price)
Community property percentage: 24.02% = ($9,200 community property payments that reduced the separate property loan(s) principal /divided by the$38,300 purchase price)
Separate property cash interest: $131,931.5 =$8,300 separate property downpayment +$7,000 separate property before marriage principal loan payments +$655 post-separation separate property principal loan payments +$26,700 premarital appreciation + $89,276.50 separate property percentage of the appreciation during marriage ($117,500*75.98%)
Community property cash interest: $37,423.50 =$9,200 community property principal loan payments + $28,223.50 community property percentage of the appreciation from the date of marriage through the date of trial ($117,500*24.02%)
H was awarded the separate property interest of $131,931.50 plus one-half of the community interest of $18,711.75 ($37,423.50/2) for a total of $150,643.25. W was awarded one-half of the community property interest of $18,711.75 ($37,423.50/2). H was responsible for the balance due on the loan.
If H wanted to keep the home, he would have to pay his wife $18,711.75. If W wanted to keep the home, she would have to pay H $131,931.50 and assume or refinance the loan.
A few final notes:
- The Moore-Marsden rule and formula applies to the disposition of commercial or residential property (See Marriage of Frick (1986) 181 CA3d 997)
- The Moore-Marsden formula does not determine the disposition of property acquired during the marriage, even if funded by one spouse’s separate property
- Mortgage interest, property tax, maintenance, and utility payments aren’t taken into consideration in the Moore-Marsden formula
- The community also acquires an interest in a separate property when the spouses or partners refinance and pay off a separate property mortgage with a new loan (In re Marriage of Branco (1996) 47 Cal.App.4th 1621)
- You can learn more about Moore-Marsden in Hogoboom & King, California Practice Guide: Family Law (Rutter) Section 8:295
- The California Appellate Court recently published a new opinion on the Moore-Marsden formula that is quite easy to read. See Marriage of Mohler
- When a trial court determines the value of the community’s property interest in a residence, it values the property at the date of trial, not the date of the parties’ separation unless there are equitable reasons to do otherwise. (California Family Code Section 2552(a); In re Marriage of Sherman (2005) 133 Cal.App.4th 795)