Recent Blog Posts in April 2010 |
| April 08, 2010 |
| I am not on TITLE or our HOME, but we paid the MORTGAGE for 7 years.... |
| Posted By Thurman Arnold |
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Q. I am not on title to a home my husband owned before we married but we paid the mortgage for 7 years. If we divorce, do I have any interest in it?
A. There is an important concept under California Law involving what is generally known as "Moore-Marsden apportionment."
It applies to a common situation where a home is acquired before marriage, title is in the name of the acquiring spouse alone, and during the marriage and up to separation or divorce filing the mortgage is paid down with community funds.
Where this occurs the community estate acquires a legal, reimbursable, interest in what would be otherwise be entirely the separate property of the titled spouse IF community funds (earnings of either spouse, for instance, or both) are used to make the mortgage payments. The idea is that joint funds are being used to benefit a separate property interest, i.e., the separate property equity. Many legal scholars consider this to be a breach of fiduciary duty - that whenever one or the other spouse's separate property interests are increased with community funds, or community time, skill, and efforts of either spouse during the marriage, the community is disadvantaged and that this disadvantage violates the statutory duties of the parties that place the party's joint interests above their separate interests.
The formula for apportionment is that the community acquires a pro tanto (dollar for dollar) interest in the ratio that principal payments on the purchase price made with community property bear to payments made with separate property. Hence, any increase in value (appreciation) must be apportioned between the separate property and the community property estates upon separation or dissolution.
Note that this only applies to separate property owned prior to marriage with a mortgage that was paid during marriage where an equity position has been increased. For instance, if a mortgage exists but it is an interest only mortgage, payments during marriage do not reduce principal. Therefore, the separate interest of the owner spouse is not improved because the debt remains exactly the same. As a general rule, the amounts paid for interest, taxes, and insurance on the house are disregarded since that portion does not to contribute to the capital investment.
Also, it assumes that the mortgage was paid with joint (community) funds, or that the funds used were so commingled that the "separatizer" is unable to trace them to a separate property source (meaning they don't have records showing where each payment was made or are unable to provide a recapitalization of the source of the funds). If your husband reduced the mortgage throughout the marriage but he did it with an account that was his separate property then the community would not have this reimbursement right.
The Moore Marsden formula requires a number of bits of information at important points in time to be properly calculated. These include:
- what was the original purchase price
- what was the original mortgage and downpayment
- what was the property worth at the date of marriage (DOM)
- what was owed to the lender at that time
- what was the property worth at the date of separation
- what was owed at that time
- what is the property worth on the date of the calculation (i.e., the trial date) and
- what is the principal pay-off at that time?
This is an example of why family law and divorce cases can become complicated and expensive. Obtaining these records, particularly if you are the 'out spouse' can be difficult, and sometimes a forensic accountant is the best option for calculating these apportionments. You need an experienced family law attorney for these types of matters.
In your case, with a lengthy marriage, you have significant Moore-Marsden entitlements. However, these may be adversely affected by the crash in the real estate market since so much equity has evaporated.
T.W. Arnold, III CFLS |
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| April 08, 2010 |
| I am named in my Wife's will. If we DIVORCE does the WILL help me? |
| Posted By Thurman Arnold |
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Q. My wife has a lot of real estate property. She put me on her Will. If we divorce, does this help me make a claim to the property?
A. Please see my other Blogs about transmutations using the onboard search engine at the upper right of this page.
Wills do not effect transmutations - meaning, they don't change the character of property from community to separate or separate to community. Your wife's Will is neither a gift to you of an interest in the property or evidence of an intent to make a gift. It doesn't help you at all. What matters is if you are actually placed on title.
However, revocable trusts sometimes do constitute transmutations (and this is a malpractice trap for estate attorneys), especially if they were created before mid-last year, when a recent appellate decision surprised some estate planning practitioners. The trust language may inadvertently have transmutedeverything placed into the trust into community property. A family law expert would need to review the language of the trust documents carefully to properly advise you.
TWA |
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| April 08, 2010 |
| If I put my wife on TITLE to my RESIDENCE does she get half if we DIVORCE? |
| Posted By Thurman Arnold |
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Q. If I had my new Wife's name to my residence, do I give her half of the equity up to that point?
A. If you place your wife on title for any reason you run the risk that in the event of later divorce she will have some claim to the house, but not half.
Your question deals with the law of "transmutations"; a transmutation is a change in the character of property from separate to community property, or could include a change from community to separate property. These are complicated issues and very fact specific, so each situation (even each transaction) must be analyzed separately.
Whenever you change the form of title to a type of property that has titles (i.e., real property, automobiles, bank accounts) to add a person you run the risk of inadvertently transmuting the character of the property. People rarely intend this, but it happens quite commonly.
However, when an interspousal transfer unfairly advantages one spouse, there is a presumption that the transaction was induced by undue influence; this presumption may not apply, all other things being equal, if both parties enjoyed advantages). Marriage of Burkle (2006) 139 Cal.App.4th 712. It is the burden of proof of the party who was advantaged to show that the disadvantaged spouse's action was freely and voluntarily made, with full knowledge of all the facts, and with a complete understanding of the effect of the transaction.
Marriage of Matthew (2005) 133 Cal.App.4th 624.
Where a valid transmutation occurs (and deed transfers are presumptively valid), there still remains what is known as a Family Code section 2640 tracing right of reimbursement. This is a continuing separate property interest that belongs to you - assuming you do not and did not waive that reimbursement in clear separate writing. This is the separate property equity that exists as of the date of the new deed, into the future.
So, assuming on the date of marriage you place the home you received in your last divorce (btw, why are you getting remarried without a premarital agreement?) into joint tenancy with wife number 2. On that date the equity in that home is 100% yours and there is no Moore-Marsden effect to consider. Say you have $100,000 in equity.
In this simple example, absent a new transaction or a later refinance, you will continue to have a $100,000 separate property reimbursement claim in your home for all time, and in the event of a subsequent divorce, assuming at the time of the divorce sufficient evidence exists that allows you to prove the $100,000. That will typically simply consist of your mortgage balance on that date, and your testimony as to the fair market value of the property on that date (or an expert's opinion of value), with the difference being your 2640 reimbursement. You do not receive interest on that, but it does come "off the top" before the remaining equity - which would now be all community, is divided. The difference to note here is that if you had not deeded the property, it would remain your separate property subject to a Moore-Marsden reimbursement to community which usually is going to be smaller than the reverse situation.
I have written more about this in my Riverside County Family Law Blog. Use the search engine in the upper right corner of the page.
TWA
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| April 08, 2010 |
| If DATE OF SEPARATION is CONTESTED, what do COURTS look at? |
| Posted By Thurman Arnold |
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Q. If I contest date of separation, what evidence do courts look at?
A. The question for trial courts is: Does one or both spouses objectively and subjectively act and appear as though they intend a separation? It only takes one of the two, because either can legitimately harbor and intention to separate and finally terminate the relationship - consent to dissolution is not required in California.
Objective evidence of separation includes very prominently whether the spouses continue to live under the same roof. Spouses that do not maintain separate residences do not appear to be living separately, even where they are occupying different rooms within the same address. It becomes quite problematic for courts to determine what is going on inside the dwelling, and if they are still maintaining intimate relations, and family courts desire to avoid the "liar's contests" that so often accompany the stories of couples whose interests have diverged.
The fact of filing a dissolution, itself, has been found by appellate courts to be insufficient to prove physical separation as in a case where the husband filed, but went off on a international speaking tour for two years and then returned, who discovered in the court's view the marriage had continued all along.
In another case, the husband moved out to live with his girlfriend, but brought his laundry home to the wife each week to do every week. This was not a physical separation.
A separation to be effective needs to reflect a final breakup in the marriage. Ambivalent, on and off again, spouses are difficult to evaluate but the court is always going to error on the side of finding the parties have not separated if the evidence is inconclusive. This is because the policy of the law is to promote marriage, and court's are reluctant to second guess parties who fail to act with exquisite clarity. Reconciliation is a related topic, and where it is found to exist downstream (so called 'serial relationships' of get mad and make up) it will wipe out an otherwise valid physical separation.
Today, in this economy, the notion that parties must be living in two households in order to show convincing evidence of an intent to separate may be unrealistic and unfair. Many couples are forced by financial constraints to live at the same address, unfortunately loathing most or every moment of it. This is a new development in the law of physical separation in California, and may lead to some new appellate court decisions which liberalize the existing standards, and most notably the holding of the case of Marriage of Norviel. Norviel is a middle level appellate decision which is not binding on California Trial Courts, but may be followed by them as the judges feel is appropriate. That decision essentially requires that the parties, if they want to be considered separated, must:
* Clearly communicate the intent to separate to the other mate and everyone else you both know
* Move out physically or physically partition the house (nail the doors between rooms shut!)
* Divide financial accounts, including joint checking and credit accounts (cancel joint cards)
* Decline marital counseling
* Cancel prepaid vacations and do not take trips together
* Don't take your laundry "home"
* Don't date your spouse and don't be intimate
* Tell anybody who asks the marriage is toast and you are filing for divorce
* File for dissolution
* Still expect to lose the issue if you don't aggressively move the divorce forward, earlier rather than later
Fortunately, there are other cases which trial courts can follow which are not nearly so draconian if circumstances are different but nonetheless convincingly demonstrate a final and complete break in the marital relationship.
The take away from all of this is: You cannot have your cake and eat it too! Beware, and be clear or assume the risk. |
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| April 08, 2010 |
| How is the DATE OF SEPARATION determined in California? |
| Posted By Thurman Arnold |
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Q. How is the date of separation determined?
A. This is a critically important question, that no non-family lawyer would have much of a clue about and so it is my honor to set forth an outline here of what you need to know - since the justice system will pretend you knew it anyway, when of course you otherwise did not!
Once spouses separate, all their earnings and everything that is acquired with those earnings are separate property of each spouse, respectively.
Physical separation doesn't exist just because one or even both spouses have started a divorce or legal separation proceeding. There is a box at page one of California Judicial Council Form FL-100 which sets forth each person's contentions regarding the date of separation but this is in no way determinative. It is true that often people agree on the date, but there are good reasons why they may not.
For instance, if your wife buys the winning lottery ticket a month after you and she separate, she would have an a fiduciary duty duty to disclose the winnings but they would nonetheless be her separate property. You can imagine hard hard you would argue for a separation date after the ticket was purchased and the entire case might then be about the correct date of separation. Or, consider a situation where a major liability is incurred on a given date; how that liability is assigned between the parties may have everything to do with whether it occurred before or after separation.
The issue also commonly arises when people reconcile after a physical separation for some fleeting period. Does this extend the original date of separation and create a new, later, date? Yes.
What if the spouses reside intwo households now, but continue to date, have intimate contact, or take vacations. Might this affect the date of separation? Absolutely. Or, what if they want to keep the fact of separation secret from family or friends, does this have an impact? Yes it may.
Spouses can stipulate to a date of separation, as is often the case. But when it matters to how property or debt is characterized or divided, or what the length of the marriage was for purposes of awarding spousal support, or where the parties' conduct has arguably been ambiguous, it becomes a contested issue that a family trial must resolve after taking testimony and receiving evidence.
Often it becomes a "bifurcated issue," meaning a separate mini-trial may occur since the court's findings may have a major impact on other issues and those issues cannot be resolved (or lawyers are limited in what advice they can safely give) until the DOS (date of separation) is known.
For more information on physical separation and its legal significance, click here.
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