Divorce Property Division Law in Corona
Based on information provided by Data USA, there are more homeowners per capita in Corona, California than the national average. With a divorce rate of nearly 60% in California, a common issue in Corona divorce cases is determining how to divide real property.
Going through a divorce, no matter what the reason, is a difficult process. Quite often, determining how to divide the separating parties’ property is the most complicated part of a divorce. This blog will provide an overview of property division issues commonly seen in Corona divorce cases.
Generally, the Riverside Family Court recognizes the following types of property: community property, quasi-community property and separate property. At the time of divorce, the family court judge will divide the property so that each spouse receives their respective separate property. Community and quasi-community property are divided equally between the spouses. However, the family court judge must first characterize the separating parties’ property before it can be properly divided.
Property Characterization
Community Property
Community property is considered to be any property acquired during the marriage that is not a gift or inheritance. This includes tangible property (e.g. house, cars, clothes, etc.), intangible property of value (e.g. bank accounts, stocks, pension plans, etc.), as well as earnings and debts acquired during the marriage. Each spouse owns one-half of the community property assets and are each responsible for one-half of the community property debts. Combined, community assets and debts are commonly referred to as the “community.” Absent an agreement between the parties to the contrary, the Riverside Family Court judge must divide community property equally (i.e. 50/50) between the parties.
For example, let’s assume that Husband and Wife are two employed individuals who get married and have kids. After getting married, the parties purchase a home. In order to do so, they make a downpayment with income they earned during the marriage and take out a mortgage for the remaining balance. Shortly thereafter, Husband loses his job and becomes a stay-at-home parent. Husband then accrues significant credit card debt paying for household groceries, children’s clothes, etc. Conversely, Wife maintains her job throughout the marriage and only her income is used to pay down the mortgage until the parties end their marriage. How should the property be divided when the parties divorce?
The house would be characterized as community property because it was acquired during the marriage with community funds (i.e. earnings acquired during the marriage). Therefore, whatever equity that exists in the house would be divided equally between the parties.
This may seem like an unfair outcome for Wife because only her income was used to pay down the house’s mortgage. However, Wife’s income used to make the mortgage payments were also acquired during the marriage and, consequently, would be considered community property as well. Therefore, because community funds were used to make the downpayment and pay down the mortgage, the court will essentially treat such payments as if both parties equally contributed to them.
The credit card debt would also be characterized as community property. Despite the fact that Husband incurred this debt on his own, it is presumed to be community property because this debt was acquired during the marriage. As a result, Husband and Wife would be equally responsible for this debt.
Quasi-Community Property
Quasi-community property is property acquired in another state that would be considered community property had it been acquired in California. The Riverside Family Court treats quasi-community property the same as community property when dividing property (i.e. it’s split 50/50 between the parties).
So, had the parties in the above example purchased a vacation home in another state during their marriage, the vacation home would be characterized as quasi-community property. This is because the vacation home would have been characterized as community property had it been acquired in California. When the parties divorce, the vacation house will be divided equally between the parties.
Separate Property
Separate property is considered to be all property acquired before marriage, during marriage by gift or inheritance, and after the marriage ends. This includes profits, rents and money earned from separate property. Additionally, property purchased during the marriage with separate property may also be considered separate property. Upon divorce, the Riverside family judge is required to confirm separate property to the owning spouse.
Again, let’s use the above example and further assume that Husband purchased a valuable painting for himself two weeks prior to marriage. Additionally, let’s also assume Wife received a $500,000 inheritance during the marriage and placed this money into an interest-bearing savings account.
At the time of divorce, the painting would be characterized as Husband’s separate property because Husband acquired it before the marriage. As a result, Wife would have no interest in the painting and the court would confirm it only to Husband.
Assuming the savings account was kept separate from community funds, the $500K and any interest it accrued would be characterized as Wife’s separate property. Although this money was technically acquired during the marriage, it was through an inheritance Wife received. As discussed above, an inheritance received during the marriage is considered to be the receiving spouse’s separate property. And because money earned from separate property is also considered to be the owning spouse’s separate property, whatever interest Wife’s inheritance accrued would also be characterized as separate property. Therefore, Wife would receive the amount held in the savings account (i.e. $500K plus interest) all to herself when the parties divorce.
Cases can become very tricky when it is difficult to determine what is community property and what is separate property. For example, some property may be “mixed” character because it is both community and separate. Also, there are statutes that state that the title of property is controlling, which sometimes conflicts with the premise of community property and separate property law. The following sections will examine these issues in greater detail.
Mixed (or “Commingled”) Property
“Commingling” refers to a situation when one spouse’s separate property is mixed together with community property. When separate and community property are commingled, it can be very complicated figuring out how to divide it. This is partly due to the fact that the court will apply various statutes and case law depending on the specific facts of the case. For purposes of this blog, only some of the more common commingled property scenarios seen in Corona divorce cases will be discussed.
Separate Property Reimbursement – California Family Code §2640
Under §2640, separate property contributions used to acquire community property may be reimbursed, unless the party who made such contributions provided otherwise in writing. Although §2640 can be applied to a number of scenarios, a typical scenario involves a spouse seeking reimbursement for their separate property downpayment on a home. Let’s take a look at the following example to shed some light on how this scenario plays out in court:
Husband owned a house before the marriage and then sold it immediately after getting married. Husband then used the proceeds from the house (i.e. separate property funds) as a downpayment on a new house. Husband and Wife then paid off the new house’s mortgage with money they earned during the marriage (i.e. community funds). How should the house be divided?
In this example, the new house is presumed to be community property because it was acquired during the marriage. However, we still have a commingled property issue because the equity in the house is mixture of both separate property (i.e. Husband’s downpayment) and community property (i.e. mortgage payments made with community property funds).
To resolve this issue, Husband would first point to §2640 for reimbursement of his separate property downpayment. In order to do so, however, he would need to prove the source of the downpayment can be traced back to his separate property (i.e. the proceeds received from selling his separate property house). If Husband is able to properly trace and identify the downpayment, the Riverside Family Court judge would reimburse Husband for that amount. The remaining equity in the house would be considered community property and would be split equally between the parties.
It’s important to note that being able to accurately trace the source of the separate property funds is a crucial when seeking reimbursements under §2640. If not done properly, the court can consider the separate property contribution as a gift to the community. As a consequence, the separate property contribution would lose its “separate” status and be characterized as community property to be split equally between the parties.
Community Property Interest in Separate Property – Moore/Marsden Formula
Let’s change the facts in the above example and say that Husband didn’t sell his house. Instead, let’s assume that Husband kept the house he owned prior to marriage and Wife moved in with him after getting married. The parties then reduced the mortgage on the house using community property funds. After the marriage ends, would Wife have any interest in the house?
The simple answer is yes; Wife would be entitled to her community interest in the home. But things can get much more complicated when determining the exact amount each party is entitled to. Fortunately, there is a single formula Riverside family courts look to when faced with these types of situations, the Moore/Marsden formula.
The Moore/Marsden formula derives its name from two cases decided by the Supreme Court of California in the early 1980’s: Marriage of Moore (1980) and Marriage of Marsden (1982). In essence, both of these cases involved calculating the community property interest in real property that was acquired by one spouse before the marriage. Instead of giving a detailed explanation of Moore/Marsden formula’s logistics, it would be easier to understand how it works by examining the following example:
Husband purchased a house before the marriage for $500,000 by making a $100,000 down payment and taking out a mortgage for the remaining $400,000 balance. Husband then reduces the principal amount due on the mortgage by $50,000 prior to marriage. Husband gets married and Wife moved in with him. The parties paid down the principal amount on the mortgage by $125,000 during the marriage with community property funds. At the time the parties married, the fair market value (“FMV”) of the house was $650,000. At the time the parties divorced, the FMV of the house was $850,000.
Before diving into calculations, it should again be noted that Wife is only entitled to her community interest in the house. This is because she did not contribute any of her separate property. Husband, on the other hand, contributed his separate property and is entitled to his community AND separate property interest in the house. With this in mind, let’s now apply the Moore/Marsden formula to the above example and calculate how much of the house each party is entitled to.
The community will get reimbursed for the principal paydown of the mortgage during the marriage, or $125K. Accordingly, Wife would be entitled to one-half of this value. Also, the community would share in a percentage of the house’s appreciation during the marriage. This percentage is determined by dividing the purchase price by the community principal paydown, or $125K/$500K = 25%. The house appreciated in value by $200K during the marriage, which was determined by subtracting the FMV at time of marriage ($650K) from the FMV at time of divorce ($850K). So, the community will receive 25% of $200K, or $50K. In sum, the community is entitled to $175K (i.e. $125K + $50K), which will be divided equally between the parties. This means that Wife is only entitled to $87,500 of the house.
Husband will get reimbursed for his separate property contributions, which includes the $100K downpayment and his separate property principal paydown of $50K. Additionally, the house’s pre-marital appreciated value, which is $150K (i.e. $650K – $500K), would also be considered Husband’ separate property. Thus, Husband’s separate property interest in the house amounts to $300K (i.e. $100K + $50K + $150K). Last, Husband would also receive his community property interest in the home. As discussed above, we determined that this amount comes out to be $87,500. Therefore, Husband is entitled his separate property interest ($300K) plus his community interest ($87,500) in the house, or $387,500 total.
The above example represents a more dulled down Moore/Marsden scenario compared to what separating parties normally face. Frequently, there are a number of related issues (e.g. improvements to real property, refinancing mortage, etc.) that can cause make applying the Moore/Marsden formula even more complicated.
Division of Property Held in Joint Title
You may have noticed that most of the examples included in this blog involve real estate (or real property). This is because there are more homeowners in Corona, California than the national average (based off of information provided by Data USA). With a divorce rate of nearly 60% in California, it’s not surprising that a common issue in Corona divorce cases involves determining how to divide real property. With this in mind, let’s examine yet another real property issue frequently faced by separating parties.
Under California Family Code §2581, property, whether real property or personal property, acquired during the marriage held in joint title (e.g. tenancy in common, joint tenancy) is presumed to be community property. This presumption may be overcome ONLY by a writing (e.g. deed, prenuptial agreement, etc.) executed by the parties stating the joint title property is separate property.
To help better understand the importance of the §2581 presumption, let’s look at the following example:
Husband and Wife purchase a home in California during their marriage. The deed provides that Husband owns 90% of the home as a tenant in common and Wife owns the remaining 10% as the other tenant in common. The deed does not mention Husband’s or Wife’s community property interests in the home and there is no other written agreement between the parties. The parties subsequently divorce and Husband argues he’s entitled to 90% of the home. Is he correct?
The answer: No. A family court judge will presume the house is community property under §2581 and, as a result, will divide the home 50/50 between Husband and Wife.
The §2581 presumption may appear to be a fairly simple concept. Unfortunately, most joint title issues are not so easily resolved. There are a number of nuanced factors presented by each case that quickly tangle-up this seemingly straightforward concept. The following example provides a more typical looking joint title issue:
Husband purchases a home before marriage, paying for it with his own separate property, title in his name alone. Husband marries Wife four years later, at which point the house had appreciated in value and the mortgage had been paid down considerably by Husband’s pre-marital (i.e. separate property) contributions. The parties immediately amend the deed and convert the home into joint tenancy. After five years of marriage, the parties divorce and Wife argues the house is community property. Is she correct?
The answer: It depends… First, Husband would have to overcome the §2581 presumption that the house is community property. That’s right. Even though Husband purchased the house before the marriage, case law on this issue suggests that the house would be considered “acquired” during the marriage within the meaning of §2581 because it was converted into joint tenancy property during the marriage (see Marriage of Neal (1984)). So, unless Husband has evidence of a writing showing he was to maintain his separate property interest, the home is presumed to be community property.
The above example may appear to be an unfair outcome for Husband. However, the §2581 presumption is merely the threshold issue that a family court judge will first address. There are a number of claims Husband can present in order to ensure the house is dealt with fairly and equitably in the divorce. For instance, Husband could overcome the §2581 presumption by making a claim of undue influence under Family Code §721(b) and restore the house to his separate property. If Husband is unable to overcome the §2581 presumption, Husband will still have a claim for reimbursement of his traceable separate property contributions to the house under Family Code §2640.
As you can probably imagine, addressing a joint title issue in a divorce case can be a complicated endeavor. This is why it’s strongly recommended to consult with a family law attorney if you’re dealing with a joint title issue in your divorce case. The attorneys at Wilkinson and Finkbeiner have successfully represented numerous clients who have been faced with this issue. To learn more about how we can assist you, please feel free to contact our office to schedule a free consultation with one of our attorneys.