Dividing the house or other real property in a California Divorce
I am often asked questions similar to this one:
Am I entitled to anything from a living trust in divorce if I paid the mortgage?
My ex put the home that we are living in into a living trust before the marriage. For the last 5 years or so, I have been paying the mortgage on the home. Am I entitled to anything on the home? Or does the trust keep everything?
Yes, you are entitled to something!
Real Property Purchased During Marriage is Community Property
If you and your spouse buy a house during marriage, the house is usually community property absent a specific written agreement that it is not. It doesn’t matter if only one spouse makes all the mortgage payments. If either spouse contributed separate property money to the down payment, then that contribution goes back to the spouse who made it. Examples are one spouse’s family contributes funds for the down payment of the marital residence or one spouse had money earned prior to marriage which that spouse puts toward the down payment.
A Spouse May Have an Ownership Interest in Real Property Owned by the Other Spouse Before the Marriage
The issue is more complicated when one spouse purchases the property before marriage and has a mortgage which is partially paid off during the marriage. California Family Code Section 2640 provides a right to reimbursement for separate property contributions to community property and for community property contributed to the separate property of one spouse.
California law mandates the use of a formula to calculate each party’s interest in real property when acquired prior to the marriage by one spouse or partner. The party who originally purchased the asset has a pre-marital separate property interest in the property, but community property funds were used to continue to acquire the property by paying the mortgage. The payments create a community property interest in the residence. This can be further complicated by a refinance during marriage. It can be further complicated if one spouse continues to live in the house after separation.
The Moore-Marsden Calculation
The formula used by California courts to calculate each party’s interest in real estate is known as Moore Marsden or Moore-Marsden or Moore/Marsden. These are the names to two (2) California cases involving; you guessed it, dividing real property at divorce when one spouse purchased the property before marriage. In re Marriage of Moore (1980), 28 Cal.3d 366 and In re Marriage of Marsden (1982), 130 Cal.App.3d 426. In Marriage of Frick (1986), 181 Cal.App.3d 997, the Court held the Moore Marsden formula should also be applied to commercial properties.
The formula discussed in the Moore and Marsden cases is confusing. The purchasing spouse receives a pro tanto interest in the increase in equity in the property during marriage based on a percentage calculated by dividing the down payment paid by the purchasing spouse plus the original mortgage minus the amount the community paid down the mortgage by the purchase price of the property multiplied by the marital appreciation plus the down payment plus the purchasing spouse’s pre-marital principal reduction plus pre-marital appreciation. The community’s interest is calculated by adding the marital payments towards principal to the community’s pro tanto percentage multiplied by the marital appreciate in the property.
You may be asking what about the interest payments (which early on make up most of the mortgage payment), the taxes, which in California can be substantial, and utilities and maintenance. California Family Code Section 2640(a) specifically excludes those expenses from reimbursement claims because they do not technically contribute to the acquisition of the property. That was a lot of words, so I’ll give a simplistic example to illustrate the formula.
Original Purchase Price = $100,000
Down Payment = $20,000
Original Mortgage = $80,000
Pay Down of Principal Before Marriage = $10,000
Pay Down of Principal After Marriage = $15,000
Value of Property At date of Marriage: $150,000 (appreciation of $50,000 between date of purchase and date of marriage)
Value of Property at Date of Division: $350,000 (appreciation of $200,000 during the marriage)
Purchaser’s Pro Tanto Interest:
Down Payment $20,000
Original Mortgage + $80,000
Marital Mortgage Pay down – $15,000
Purchase Price ÷ $100,000
Community’s Pro Tanto Interest:
Marital Mortgage Pay Down $15,000
Purchase Price ÷ $100,000
Purchaser’s Interest in the Property:
Interest in Marital Appreciation (85% × $200,000) $170,000
Down Payment + $20,000
Pre-Marital Principal Pay Down + $10,000
Community Interest (One Half) (15% × $200,000 × .5) + $15,000
Marital Mortgage Pay down (One Half) ($15,000 x .5) + $7,500
Pre-marital Appreciation + $50,000
Other Party’s Interest in the Property:
Interest in Marital Appreciation (15% x $200,000) $30,000
Marital Principal Pay Down +$15,000
One Half of Community Interest ÷ 2
These sorts of calculations can require some hard to obtain information. You need the value of the property at the date of marriage and at the date of division. The value for the date of division is easy to obtain by an appraisal or the selling price if it is sold. However, the date of marriage value could be more difficult to obtain especially if the parties owned the property for a long time. A professional real estate appraiser who specializes in historical appraisals will likely need to be engaged.