Divorcing in California? 3 Separate Property Reimbursement Rights You Need to Know

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When you were thinking about getting married, you probably looked at your accounts and obligations to determine how many guests to invite to your wedding or how long your honeymoon vacation could last. You might have considered your assets when deciding on the house to buy or the remodeling expense to undertake. But now, as you are thinking about a divorce, the calculations probably seem a lot different. Indeed, getting a divorce in California may entail a lot of spreadsheets, calculations, and hunting down old account statements to understand what was yours when you went into the marriage, what belongs to the community, and what reimbursements you may be entitled to.

Whether you are considering your options or the paperwork has been filed, you should know your separate property reimbursement rights. Here are three key reimbursements to consider. Please note: For each of these reimbursements, there are complex limitations and considerations to consider, and reimbursements are just one element of many divorce settlements. If you have any questions about your rights, you should speak with an experienced divorce attorney to understand the extent and limitations of your particular situation.

#1: You Contributed to the Community With Your Separate Property—And Can Prove It

Separate property contributions to community property assets is perhaps the most common and familiar reimbursement right. Here, separate property reimbursement rights under Family Code 2640 refers specifically to the use of separate property (like premarital savings or a monetary gift from your parents) to the acquisition of a community property asset (like a down payment on a home).

In order to be reimbursed, you need to be able to show the paper trail that the money came from a separate property source. For some spouses, this will as simple as mutual agreement; others will need to show the paper trail (called “tracing”) in order to prove to the court that reimbursement is due.

Although this reimbursement right is typically asserted for the marital home, you may also be due reimbursement if you refinanced a separate property home and used that money toward additional properties (like investment properties or vacation homes). Note that you are only due the amount you contributed, not any interest or appreciation of value beyond your initial contribution, and you need to be able to trace the separate property contribution to a community property asset.

#2: You Contributed Labor to a Separate Property Business

This reimbursement right may affect individuals who owned a business before getting married. It sounds complicated, but it is really the merging of two somewhat competing principles of marriage in California:

  1. What you owned before the marriage is your separate property, including a business.
  2. What you earn, acquire (including debt), or spend your labor on during a marriage (including running a business) is community property.

The courts have landed on two different ways of calculating whether (and how much of) a separate property business should be considered community property: Van Camp and Pereira. Here is a quick explanation of each of these formulas:

  • Van Camp: If the community received more from the business than the individual gave, then the community benefited from the bargain and is not entitled to reimbursement.
  • Pereira: If the business increased in value during the marriage due to the owner’s efforts, the owner is entitled to a reasonable rate of return on their investment and the remainder is due to the community (and gets paid in the form of reimbursement).

In other words, if the business did not increase in value, there is nothing to reimburse. If the community earned more from the business than the individual gave, there is no need for reimbursement. But if the individual’s contributions were outpaced by the value of the business, then the community has a right to reimbursement from the business’s value above the owner’s reasonable return on investment.

#3: Your Separate Property Money was Spent on Your Ex-Spouse’s Obligations or Education

Lastly, you may be entitled to reimbursement if you used your separate property to pay your spouse’s obligations during the marriage. For example, you may be eligible for reimbursement if your separate property was used to pay your spouse’s:

  • Child support from another relationship
  • Spousal support from another relationship
  • Separate property taxes or debt
  • Education or training
  • Mortgage payments
  • Improvements to separate property assets
  • Expenses of their separate property

This list is not exhaustive, but it gives a good sense of the types of separate property expenditures that, if made from your separate property assets during the marriage, may qualify for reimbursement.

In California, Separate Property Reimbursement Is Just the Start

We have examined three of the most common scenarios for reimbursement rights in California: Contributing separate property to the community, contributing labor to a separate property business, and contributing separate property to your spouse’s assets or education. 

However, depending on the complexity of your finances during the marriage, reimbursements may be just one element of a fair agreement. In addition to separate property reimbursement rights, California Family Law also acknowledges credits if you used separate property funds to pay community debts and charges for using real property or assets after the date of separation. Any of these factors may impact the appropriate division of property and debt. Be sure to carefully consider your options before agreeing to any financial settlement.

At Van Voorhis & Sosna, we know the complexities of divorce in the Bay Area because family law is our sole focus. We offer legal advice and representation based on integrity, trust, and understanding. Contact us today, or call 415.274.2530 to schedule a free legal consultation.

 

The content provided on this website is for informational purposes only and does not, and is not intended to, constitute legal advice. Information on this website may not constitute the most up-to-date legal or other information, and you should contact an attorney to obtain advice regarding your particular issues or problems. Use of and access to this website do not create an attorney-client relationship between Van Voorhis & Sosna and the reader. 

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