wc47 said:
i'm not sure i fully understand. if i had $250,000 equity
in my home ten years ago before i got married and now i only have $170,000 equity because of re-financing, consolidation loans etc. we both made together, she is entitiled to half of the $170,000?
My response:
Calculation of Community Property (CP) and Separate Property (SP) interests must take into account both the outstanding mortgage obligation and the increased value of the home. When the down payment is made with separate funds and the loan is based on a community or joint obligation, the spouse who made the SP contribution has a SP interest in the proportion that the down payment bears to the purchase price; and the community acquires that percentage of the residence which the community loan bears to the purchase price. [Marriage of Lucas, (approving calculation method adopted in Marriage of Aufmuth (1979) 89 Cal.App.3d 446, 152 Cal.Rptr. 668)]
Home acquired BEFORE marriage--separate property title, mortgage paid down with community funds ("Moore/Marsden" apportionment): For example, assume H purchases a home for $38,300 while single, paying $8,300 down, and executing a $30,000 purchase money trust deed loan for the balance. Title is taken solely in H's name.
At the time of his marriage to W, H has made a total of $7,000 loan payments in reduction of the principal balance and the property has increased in value to $65,000 ($26,700 premarital appreciation).
During marriage and prior to the date of separation, the community contributes $9,200 payments in reduction of the principal loan balance. At time of trial, the property is worth $182,500 (the property appreciated an additional $117,500 between date of marriage and date of separation); H has used his postseparation earnings to reduce the loan principal by another $655; and the balance now owing on the loan is $13,145. (These facts are taken from Marriage of Marsden (1982) 130 Cal.App.3d 426, 181 Cal.Rptr. 910.)
As explained below, the ultimate disposition of the property is a reflection of the CP and SP percentage and cash interests at time of trial, determined as follows:
· Percentage interests: H has a 75.98% separate property interest, determined by adding the $8,300 downpayment, plus $20,800 ($30,000 SP loan, minus $9,200 CP payments) and dividing the total ($29,100) by the $38,300 purchase price.
The community has a 24.02% interest--i.e., $9,200 CP payments reducing principal, divided by the $38,300 purchase price.
These percentages are used to determine the respective interests in the appreciation accrued during marriage and before separation; see below.
· Cash interests: H's separate property cash interest is the product of his SP downpayment, his SP before marriage and postseparation principal loan payments, the entire premarital appreciation, and 75.98% of the appreciation during marriage:
Downpayment $ 8,300
Premarital loan
payments 7,000
Postseparation
loan payments 655
$ 15,955.00
Plus premarital
appreciation 26,700
Plus 75.98% of
during marriage
appreciation $ 89,276.50
= H's SP cash share $131,931.50
In contrast, the community shares only in the appreciation between the date of marriage and the date of separation, producing a cash share as follows:
CP loan payments $ 9,200.00
Plus 24.02% of
during marriage
appreciation $ 28,223.50
= CP cash share $ 37,423.50
· Ultimate disposition: Based on the above computations, H should be awarded a SP interest of $131,931.50, plus one-half of the community interest ($18,711.75), for a total of $150,643.25. W is entitled to her one-half share of the community interest ($18,711.75) and H is, of course, responsible for the balance due on the loan. [See Marriage of Marsden, supra, 130 Cal.App.3d at 439-440, 181 Cal.Rptr. at 917]
At time of the purchase, the home is clearly H's separate property (SP title, SP down payment, and loan based on SP). However, if community funds are used to make mortgage payments on property purchased by one spouse before marriage, the community acquires a pro tanto interest in the ratio that principal payments on the purchase price made with CP bear to payments made with SP . . . and any increase in value of the property must be apportioned accordingly. [Marriage of Moore (1980) 28 Cal.3d 366, 168 Cal.Rptr. 662; Marriage of Marsden, supra; Marriage of Frick, supra]
Source of payments issues: Of course, the party who purchased the house before marriage might be able to overcome CP apportionment by proving the payments during marriage did not come from a CP source. But if the payments were made from a commingled account (and they often are), they are presumed CP unless the contestant can satisfy the "tracing" burden. [See Marriage of Higinbotham (1988) 203 Cal.App.3d 322, 249 Cal.Rptr. 798
The calculation of interests must take into account the status of the downpayment and the status of the loan payments toward principal; amounts paid for interest, taxes and insurance are disregarded, since that portion of the mortgage payments "does not contribute to the capital investment." [Marriage of Moore, supra, 28 Cal.3d at 372, 168 Cal.Rptr. at 664; Marriage of Marsden, supra, 130 Cal.App.3d at 438, 181 Cal.Rptr. at 916; Marriage of Frick, supra, 181 Cal.App.3d at 1013, 226 Cal.Rptr. at 774]
Thus, the SP percentage interest is determined by crediting separate property with the downpayment and the full amount of the loan, less the amount by which CP payments reduced the principal balance of the loan, and dividing that sum by the purchase price. [Marriage of Moore, supra, 28 Cal.3d at 373, 168 Cal.Rptr. at 665; Marriage of Frick, supra, 181 Cal.App.3d at 1008, 226 Cal.Rptr. at 770]
The CP percentage interest is ascertained by dividing CP payments in reduction of principal by the purchase price. [Marriage of Moore, supra, 28 Cal.3d at 373-374, 168 Cal.Rptr. at 665 (approving formula adopted in Marriage of Aufmuth (1979) 89 Cal.App.3d 446, 152 Cal.Rptr. 668, and implicitly disapproving Marriage of Jafeman (1973) 29 Cal.App.3d 244, 105 Cal.Rptr. 483, to extent it ignores status of loan contribution in apportionment process); Marriage of Frick, supra]
Adjustment to determine actual cash shares: The calculation of percentage interests is based on the original purchase price, not on the property's fair market value at date of marriage--i.e., the premarital appreciation is not factored in to determine the respective percentage interests. [Marriage of Marsden, supra; Marriage of Frick, supra, 181 Cal.App.3d at 1009, 226 Cal.Rptr. at 771]
By the same token, where premarital separate property (not converted into joint form during marriage) has substantially increased in value at time of marriage, a substantial inequity could result if the community were to share in the premarital appreciation. In this case, therefore, the separate property interest is to be credited with the premarital appreciation to determine actual cash shares. [Marriage of Marsden, supra, 130 Cal.App.3d at 438-439, 181 Cal.Rptr. at 916-917; Marriage of Frick, supra, 181 Cal.App.3d at 1009, 226 Cal.Rptr. at 771]
For Example: Thus, in Marsden, supra, H's SP cash share reflected all of the premarital appreciation, plus 75.98% of the during marriage appreciation; and the community shared only in 24.02% of the during marriage appreciation.
Same analysis where home acquired before marriage--separate property title, mortgage refinanced during marriage: The same Moore/Marsden apportionment approach applies where there is a premarital loan secured by a party's separate property and, instead of making payments during marriage on the original mortgage with community funds, the property is refinanced during marriage and the original mortgage is paid in full with proceeds of a community property loan obtained jointly by the parties. The community is entitled to an interest in the property pursuant to Moore/Marsden since it is treated as having contributed toward the property's acquisition. [Marriage of Branco (1996) 47 Cal.App.4th 1621, 1627, 55 Cal.Rptr.2d 493, 496--community entitled to interest in W's premarital residence where H and W procured loan secured by the residence 10 months after marriage which paid off entire balance on original mortgage]
"We can discern no meaningful difference, for purposes of determining whether the community acquires an interest in real property, between the use of community funds to make payments on one spouse's preexisting loan and the use of proceeds from a community property loan to pay off the preexisting separate loan." [Marriage of Branco, supra, 47 Cal.App.4th at 1627, 55 Cal.Rptr.2d at 496]
Calculation of interests; example: Assume, as in Branco, supra, that W owned the residence before marriage. Almost a year into the marriage, H and W refinanced the home using a portion of the community loan proceeds to pay off the original mortgage.
In this scenario, the community property interest in the home is computed by dividing the community's contribution to the purchase price of the home (i.e., payments reducing principal made with CP funds on the original loan, if any, plus the principal balance of the loan paid off with the proceeds of the community loan) by the purchase price.
This percentage is then multiplied by the appreciation of the home during marriage. H is entitled to one half this amount as his share of the community interest. W is entitled to the other half of the community interest in the appreciation during marriage, plus all the premarital and postseparation appreciation, the downpayment and payments reducing principal on the original loan made before marriage. [Marriage of Branco, supra, 47 Cal.App.4th at 1629, 55 Cal.Rptr.2d at 497]
(H and W then share equally the outstanding loan balance on the secured loan obtained during marriage as it is a community obligation. Marriage of Branco, supra, 47 Cal.App.4th at 1629, 55 Cal.Rptr.2d at 497-498)
IAAL
