Community Property Questions

About a year ago, a friend of mine who lives in California needed to refinance her house. She bought the house in her name alone before she got married but the refi took place afterwards. And, she worked full-time but her husband was a full-time student with no income.

Just before the loan was about to close, her husband insisted that he be added to the title of the house. She didn't want to do it but because she was taking cash out and really needed the money, she compromised and promised that in return for him signing a quitclaim deed so they could fund the loan, that she would sign a piece of paper that he drafted that said, in essence, that she promised to add him to the title of the home within six months of the completion of the refi. She eventually signed the document and had it notorized, but never added him to the title on the home.

They are now contemplating divorce so I have three questions:

- Is the piece of paper she signed an enforceable contract? My gut feeling is that it's not since it doesn't seem to involve any compensation/consideration.
- If it is valid, could she try to have it voided based on the idea that she signed it under duress?
- Is she liable for any of the student loans he received during their marriage? She has not co-signed or guaranteed any of them. They are all in his name alone.

Thanks in advance for any responses.

swjl587 said:

About a year ago, a friend of mine who lives in California needed to refinance her house. She bought the house in her name alone before she got married but the refi took place afterwards. And, she worked full-time but her husband was a full-time student with no income.

Just before the loan was about to close, her husband insisted that he be added to the title of the house. She didn't want to do it but because she was taking cash out and really needed the money, she compromised and promised that in return for him signing a quitclaim deed so they could fund the loan, that she would sign a piece of paper that he drafted that said, in essence, that she promised to add him to the title of the home within six months of the completion of the refi. She eventually signed the document and had it notorized, but never added him to the title on the home.

They are now contemplating divorce so I have three questions:

- Is the piece of paper she signed an enforceable contract? My gut feeling is that it's not since it doesn't seem to involve any compensation/consideration.
- If it is valid, could she try to have it voided based on the idea that she signed it under duress?
- Is she liable for any of the student loans he received during their marriage? She has not co-signed or guaranteed any of them. They are all in his name alone.

Thanks in advance for any responses.

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CA is a community property state. Therefore her earnings during the marriage were community property. If she paid the mortgage with her earnings, then he is going to be entitled to a share of the equity in the home, that accrued during the marriage, whether that piece of paper is an enforceable contract or not.

Therefore, the only thing at question is whether or not he is entitled to any equity that accrued before the marriage. That may not be a relevant issue either, due to the refi. It depends on how much of the premarital equity the refi used up.

In other words, whether or not that is an enforceable contract and whether or not she signed it under duress, may be a moot point.

Student loans are iffy. Has she or will she benefit in any way from the education he has received?

LdiJ said:

In other words, whether or not that is an enforceable contract and whether or not she signed it under duress, may be a moot point.

Student loans are iffy. Has she or will she benefit in any way from the education he has received?

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Yes, the mortgage has been paid with her income since he’s a student and doesn’t work. I don’t know how much of the pre-marital equity in the home was removed with the refi but it would seem that he has benefited from it. Would any of the benefit he received as a result of the refi be used to offset the income he’s entitled to of hers that is being used to pay the mortgage?

And, whether or not there’s any increase in home value during the marriage would be hard to determine without a current appraisal. Chances are, with values declining, that the home is worth less than when she refinanced. If that’s the case, if I understand correctly, then he would only be entitled to a portion of the income used to pay the mortgage and not any of the remaining pre-marital equity.

Overall, it sounds like the piece of paper she signed, valid contract or not, is fairly irrelevant. From your comments, it sounds like community property law is going to apply whether she signed the paper or not.

Regarding the student loans, she hasn’t benefited yet since he’s still in school. He returned to school after they got married and won’t finish for another two or three years.

The paper is not irrelevant, LdiJ merely said it may be moot. It all depends on the numbers of course, but I think friend will be splitting any equity in the house with hubby equally.

- Is the piece of paper she signed an enforceable contract? My gut feeling is that it's not since it doesn't seem to involve any compensation/consideration.

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But, there was consideration.

she compromised and promised that in return for him signing a quitclaim deed so they could fund the loan, that she would sign a piece of paper that he drafted that said, in essence, that she promised to add him to the title of the home within six months of the completion of the refi

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Unless hubby had a pre-existing legal duty to sign, his signing would be considered consideration.

- If it is valid, could she try to have it voided based on the idea that she signed it under duress?

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A desire to refinance because a person wants some of the equity to spend is not duress.

- Is she liable for any of the student loans he received during their marriage? She has not co-signed or guaranteed any of them. They are all in his name alone.

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The community may be responsible, but I'm not sure. CA does not give the spouse rights against the "value" of the degree, so I would tend to think no. But, it does tend to give liability against the spouse for debt which was designed to benefit the community. I think this is a case law question.

Thank you, “LdiJ” and “tranquility” for the thorough explanations. I’m clear on the student loans. Regarding the house, let me summarize to make sure I understand correctly:

• She would be entitled to any remaining equity in the property (not already taken out with the refi) that existed before they got married, since it was her separate property. He would not be entitled to that.
• Because there was consideration for the agreement she signed, he would be entitled to a portion of any equity accrued during the time they’ve been married, including any related to her income that paid the mortgage each month, even though she never followed through on the promise to add him to title.

If any of the above is incorrect, I would appreciate someone clarifying.

Final question: I saw something that appeared to say that home equity built up before a marriage would continue to be separate property, even if some or all of it is pulled out in cash. This seemed to say that the cash she pulled out of the house does not become part of the community, that it stays separate, just as a gift or inheritance would be. Any thoughts on this?

swjl587 said:

Thank you, “LdiJ” and “tranquility” for the thorough explanations. I’m clear on the student loans. Regarding the house, let me summarize to make sure I understand correctly:

• She would be entitled to any remaining equity in the property (not already taken out with the refi) that existed before they got married, since it was her separate property. He would not be entitled to that.
• Because there was consideration for the agreement she signed, he would be entitled to a portion of any equity accrued during the time they’ve been married, including any related to her income that paid the mortgage each month, even though she never followed through on the promise to add him to title.

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Incorrect. The points that are being made is that because the were MARRIED he is entitled to a portion of the equity that accrued during the marriage.

Some people are making the argument that because there is "consideration" he is due half of ALL of the equity, not just the portion that accrued during the marriage. Personally, I don't agree with that argument.

However this may be a moot point if all of the premarital equity was withdrawn in the refi.

Final question: I saw something that appeared to say that home equity built up before a marriage would continue to be separate property, even if some or all of it is pulled out in cash. This seemed to say that the cash she pulled out of the house does not become part of the community, that it stays separate, just as a gift or inheritance would be. Any thoughts on this?

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That MAY be accurate if the money was not co-mingled into marital assets or debts. If she deposited it into a joint bank account, it became marital property. If she used it to purchase and title a car in both names, it became marital property...etc.

If she used it to pay off her own premarital debts, and left the remainder in an account in her own name, it may remain separate property.

Thanks, "LdiJ". Very helpful. I thought my previous question was the final one but I remembered one more. I have heard that community property laws in CA are sometimes applied differently when the marriage is considered a “short-term” marriage. Is this true? I don’t remember if “short-term” is defined as two years, five years or ten years. These two have been married less than five years.

Some people are making the argument that because there is "consideration" he is due half of ALL of the equity, not just the portion that accrued during the marriage. Personally, I don't agree with that argument.

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The court does not look to the adequacy of consideration in a sales contract--which I believe is what occurred. The portion of the property paid for with marital assets is going to be community. However, I believe EACH person has some seperate property interest in the house based on the written contract. This portion is not a community property question, but a contractual one.

Final question: I saw something that appeared to say that home equity built up before a marriage would continue to be separate property, even if some or all of it is pulled out in cash. This seemed to say that the cash she pulled out of the house does not become part of the community, that it stays separate, just as a gift or inheritance would be. Any thoughts on this?

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I agree that the money withdrawn on the refinance is seperate unless it is co-mingled of if the community was liable for repayment. The specific facts would be important. However, tracing will be difficult if placed in the same account the person kept community property.

Because of the calculation of community property is based on facts, the length of the marriage is irrelevant beyond the fact the longer together the harder to maintain accountings seperate. This makes tracing near impossible to anything the couple is not really careful about and property tends to become community over time. Alimony length and amount tends to be more related to the length of the marriage.

Unless there's been a recent change of law, student loans (which are not co-signed) are separate property.

The house is tricky. Google 'Moore Marsden formula in California divorce' or somesuch and gather more info.
You know the specifics, you can better answer your question after you have researched the community property laws of Ca relating to houses.

And, did he sign the quit claim deed effective immediately after the refi ?

And, is it her intent to leave his name on the mortgage, even if he has no ownership interest ??
How about trying to resolve this amicably ? Make him an offer to sign a Grant Deed on the house ...

garrula lingua said:

The house is tricky. Google 'Moore Marsden formula in California divorce' or somesuch and gather more info.

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Thank you. The information on Moore-Marsden information was very useful

garrula lingua said:

And, did he sign the quit claim deed effective immediately after the refi ?

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Yes, he signed it at the time the loan closed. In other words, at the time all other loan docs were signed for the refi. They were advised by the lender and escrow agent that in order to keep the home in her name alone, he would need to do this before the loan could be funded.

garrula lingua said:

And, is it her intent to leave his name on the mortgage, even if he has no ownership interest ??...

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Her intent was to keep the property in her name alone to protect her separate interest in it. But, he was insistent on being added, even though he had not contributed any income to mortgage payments, and said he wouldn’t sign the quitclaim if she didn’t agree to sign the other contract promising to add him to title within six months of the loan closing. She felt that she was between a rock and a hard place because she needed the money (after spending a lot of her money helping him get into med school), had been in the refi process for six weeks or so (with money already out of pocket for appraisals, etc.), and didn’t want to start over again. This is what led me to bring up the question of duress to begin with. He knew it would be tough for her to say no to what he was asking.


With respect to co-mingling, it looks like the remaining refi money was co-mingled in that she put the money into a joint account. But, since this happened just a year ago, is it possible for her to re-separate it, if she has good, strong records to document the paper trail? I know she’s impeccable about recordkeeping and it hasn’t been a long time. Or, is it a case of, “once co-mingled, permanently part of the community assets”?

swjl587 said:

Thank you. The information on Moore-Marsden information was very useful



Yes, he signed it at the time the loan closed. In other words, at the time all other loan docs were signed for the refi. They were advised by the lender and escrow agent that in order to keep the home in her name alone, he would need to do this before the loan could be funded.



Her intent was to keep the property in her name alone to protect her separate interest in it. But, he was insistent on being added, even though he had not contributed any income to mortgage payments, and said he wouldn’t sign the quitclaim if she didn’t agree to sign the other contract promising to add him to title within six months of the loan closing. She felt that she was between a rock and a hard place because she needed the money (after spending a lot of her money helping him get into med school), had been in the refi process for six weeks or so (with money already out of pocket for appraisals, etc.), and didn’t want to start over again. This is what led me to bring up the question of duress to begin with. He knew it would be tough for her to say no to what he was asking.


With respect to co-mingling, it looks like the remaining refi money was co-mingled in that she put the money into a joint account. But, since this happened just a year ago, is it possible for her to re-separate it, if she has good, strong records to document the paper trail? I know she’s impeccable about recordkeeping and it hasn’t been a long time. Or, is it a case of, “once co-mingled, permanently part of the community assets”?

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No, its not possible to re-separate it. Once she put it into a joint account, it became community property.

No, its not possible to re-separate it. Once she put it into a joint account, it became community property.

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This is not legally true, but practically. There are a number of tracing cases out there. I think their purpose is to make law students work harder than they have to. If wife kept impecible records there is a possibility of tracing the money. I agree with LdiJ it is unlikely, but possible. This is why attorneys are worth the big bucks.

I agree with Tranq.

It's not 100% impossible to argue against a change in character from separate to community property (I vaguely recall one case where the argument included the fact that a wife put the money in the only account available to her, which was the joint acct & she was able to trace it).
But it is rare, and requires a good explanation to the court as to how the $ was handled, and not multiple episodes of sharing money.

swjl587 said:

in her name alone before she got married but the refi took place afterwards. .

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He's on the mortgage and note?

nextwife said:

He's on the mortgage and note?

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Therefore -- if he is -- he is entitled to half of everything.