Separating Community Interest In Separate Property In California

Separating Community Interest In Separate Property In California
Separating Community Interest In Separate Property In California

Community Property

The State of California is a community property state when it comes to the division of property during divorce proceedings. Generally, in community property states, property acquired during marriage, except for gifts and inheritances, is owned jointly by both spouses and is divided equally upon divorce or annulment.

Thus property owned by one spouse before marriage is generally considered the separate property of that spouse. However, when couples get married they begin spending the money and resources they accumulate together on the things they already owned, including the property owned by one spouse before the marriage. The question then becomes, what interest does the “community” have in the separate property if the couple should divorce? In California, this question was answered by the California Supreme Court and has become known as the Moore/Marsden formula.

The California Supreme Court Set Out A Formula To Determine The Community's Interest In Separate Property
The California Supreme Court Set Out A Formula To Determine The Community's Interest In Separate Property

The Supreme Court cases

The Moore/Marsden formula was created by the California Supreme Court’s rulings in two separate cases: In re Marriage of Moore (1980) 28 Cal.3d 366 (Moore) and In re Marriage of Marsden(1982) 130 Cal.App.3d 426 (Marsden).

In the Marsden case, the Court clarified a rule set out in the Moore case and adopted a method of calculating the community’s interest in separate property that has now become the standard for answering such questions. The Court decided that when the Community makes a payment to a separate property asset, the community gains an interest in that property and must be reimbursed during divorce proceedings.

The Moore Marsden Formula Calculates The Community's Interest In Separate Property
The Moore Marsden Formula Calculates The Community's Interest In Separate Property

The Moore/Marsden Formula

In deciding the Moore/Marsden cases, the Court set out a formula to determine what interest the community has in a separate property asset.

The formula is as follows:

CP = PPCP + (CP% x MAPP)

In the formula:

CP stands for Community Property Interest;

PPCP stands for payments towards the Principal from community;

CP% stands for the Community Property Percentage with is PPCP/purchase price; CP%: Community property percentage = PPCP / Purchase Price

And MAPP stands for appreciation of the separate property asset during marriage.

The Separate Property formula is:
SP = DP + PPSP + Pre-MAPP + (SP% x MAPP)
In this formula:

SP stands for Separate Property;

DP stands for the down payment on the property;

PPSP stands for payments towards the Principal from separate property;

Pre-MAPP stands for Pre-marriage appreciation;

SP% stands for Separate property percentage with is 100% - (PPCP/Purchase Price)

When The Formula Is Complete, The Community Is Reimbursed For Money Spent On Separate Property
When The Formula Is Complete, The Community Is Reimbursed For Money Spent On Separate Property

An Example

“A” purchased a home for $200,000 in 1992 prior to getting married.  “A” made a down payment of $50,000 and borrowed the remaining $150,000.  “A” paid $20,000 in principal before getting married in 1997 to “B”.  The fair market value of the home in 1997 was $300,000.

During the marriage, “A” and “B” paid $30,000 towards the principal from community property.  When “A” and “B” separated in 2005, the fair market value of the home was $500,000.

Applying the Moore/Marsden formula:

The CP% = $30,000/$200,000 = 15%

The Separate property interest for “A” is 100%- 15% = 85%.

Community property interest = PPCP + (CP% x MAPP)
= $30,000 + (15% x $200,000)
= $30,000 + $30,000
= $60,000

As the community interest is divided in half, both “A” and “B” will get = ($60,000/2) = $30,000 each.

“A’s” separate property interest = DP + PPSP + Pre-MAPP + (SP% x MAPP)
= $50,000 + $20,000 + $100,000 + (85% x 200,000)
= $170,000 + $170,000
= $340,000

On separation and divorce, “B” gets: $30,000 as community interest in the property.
And, “A’s” community and separate property interests = $340,000+ $30,000 = $370,000

The Principal balance of the loan to be paid off by “A” = $150,000 - ($20,000 + $30,000) = $100,000

So, when a couple divorces in a community property state like California, the court will awards the community interest to each spouse and 100% separate property to the spouse who bought the property with separate funds.

Disclaimer

Dena Bez is a licensed California Attorney whose practice focuses on family law including divorce, custody disputes, domestic partnership issues and estate planning.

This Article is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using the article or the information contained in the article you understand that there is no attorney client relationship between you and the publisher. Any information in the article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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Comments 4 comments

scla profile image

scla 6 years ago from Southern California

Thanks for providing detailed explanations. It helps a lot of people understand how community property and separate property work in California.


Slugger 6 years ago

Thank you for the informative article but I am still a bit confused. What happens when dividends (or income) from a separate business asset are deferred (or reinvested) in the business?


vkc 6 years ago

Interesting info. Does this same formula give the surviving spouse first a "community interest" in separate property assets in the deceased spouse's estate, before the balance is disbursed as "separate property"? Or do Probate intestate rules trump?


Dena Bez profile image

Dena Bez 4 years ago from Sacramento, California Author

Depends on the State.

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