Community Property Interest in Property purchased prior to marriage by one spouse as that spouse's "sole and separate" property

May 1, 2014

     If the community pays down the mortgage balance, or the property is refinanced during marriage, the community will obtain an interest in separate property purchased prior to marriage as the "sole and separate" property of one spouse. If one of the spouses brings to the marriage a residence that is subject to an encumbrance, and the encumbrance is paid in whole or in part with community property during the marriage, the property, while remaining separate, will develop a community property interest that must be divided. The calculuation of this interest is sometimes referred to as the Moore-Marsden interest in the property. In re Marriage of Moore (1980) 28 Cal. 3d 366; In re Marriage of Marsden (1st Dist. 1982) 130 Cal. App. 3d 426.

 

    Where a community loan is used to pay off mortgage on separate property, the parties' respective interests must be determined. To calculate the separate property interest in the residence which one spouse purchased immediately prior to marriage, divide the separate property contributions (down payment and loan amount minus amount by which community property payments reduced principal balance of loan) by the purchase price of the property; to determine the community property interest, divide the amount by which community property payments reduced the principal by the purchase price. The community and separate property percentages can be multiplied by the total appreciation of the property during marriage to calculate the parties' respective financial interests. Be aware that if the purchase money loan was paid off because the parties refinanced during the marriage, this can dramatically change the calculations.

 

     In general, the community property interest in the home is computed by dividing the community's contribution to the purchase price of the home by the purchase price. Where the community borrowed money to pay off the purchase money loan, as with a refinance during the marriage, this may include the amount of the original loan paid off by the new community loan. This percentage is then multiplied by the appreciation of the home during the years of the marriage.

 

     To calculate this interest one must know, at a minimum:

• how title to the property was held

— when purchased

— during the marriage

— now

• the original purchase price

• the amount of the down payment

• the source of funds used for the down payment

• the date of the marriage

• the amount of mortgage principal paid

— prior to marriage

— during marriage

— after separation

• the date of separation

• the fair market value of the property

— when first purchased

— on the date of marriage

— on the date of separation

— on the date of trial

• whether the property was refinanced during the marriage

 

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