“When a residence or home is purchased, the purchaser makes a down payment on the purchase price and the remaining balance is secured by a mortgage loan. As with any loan, there is interest and principal. Interest is the amount that it costs to borrow the money. The principal is the actual amount of money paid toward the money borrowed or owed. Most loans use a simple interest method, meaning that the interest is calculated after each payment on the remaining loan balance. In order to understand how the community interest is determined in a residence that was purchased before marriage, a basic understanding of the home loan process is necessary. The following example should provide a basic understanding of principal and interest. If the buyer purchased a condo for $200,000 and made a down payment of $40,000, the buyer would have to secure a loan in the amount of $160,000. If the interest rate on the simple interest loan was 4% and the loan was for 30 years, or 360 months, the buyer would make loan payments in the amount of $763.87 each month for 360 months, or 30 years. When the loan payments are all an equal amount, that is called amortizing the loan.
The family residence is usually one of the married couple’s most substantial assets; the other major asset is retirement. Upon divorce the community interest in the family residence must be determined. FC 2640 governs reimbursement for separate property contributions made to community property. ‘FC 2640 was enacted to avoid the inequity that may result in a case where property taken [jointly] is divided equally between the spouses despite a showing that one spouse contributed a substantial portion of separate funds to the acquisition.’ (In re Marriage of Walrath.) The word property in FC 2640 encompasses not only the specific community property to which the separate property was originally contributed, but also any other community property that is substantially acquired from the proceeds of the initial property, and to which the separate property contribution can be traced. FC 2640 envisions some tracing, and the ‘only exceptions to the statutory reimbursement right are a signed written waiver or a signed writing that has the effect of a waiver.’ (In re Marriage of Walrath.) [] [A] straight tracing is done to determine the separate property interest in a family residence purchased before marriage but transmuted into a community asset. However, it should be noted that in tracing a separate property interest, an owner may testify as to the estimated value of the property. This estimate ‘may be the best that can be achieved because homeowners often do not receive copies of written appraisals at the time real property is refinanced.’ (In re Marriage of Stoll.) So, an owner is competent to testify as to the value of his or her own property.
In a dissolution or legal separation, there is a community property interest in the family residence if any amount of the mortgage payment was paid with community property earnings. Currently, there is a formula that is used to calculate the community interest in a family residence when one party purchased a home prior to marriage in his or her own name, the couple lived in the home during the marriage and made payments on the loan with community property. This formula is called the Moore/Marsden formula, after the two cases In re Marriage of Moore and In re Marriage of Marsden. ‘The separate property interest is determined by crediting the separate property with the down payment and the full amount of the loan less the amount by which the community property payments reduced the principal balance of the loan. This sum is divided by the purchase price for the separate property percentage share. The separate property interest [is represented by] the amount of capital appreciation attributable to the separate funds added to the amount of equity paid by separate funds. The community property percentage interest is found by dividing the amount by which community property payments reduced the principal by the purchase price. The community property share would [is represented by] the amount of capital appreciation attributable to community funds added to the amount of equity paid by the community funds.’ (Marriage of Moore.)
The court in Moore used the [fair market value] at date of trial minus the purchase price of the home to determine the appreciation of the home. The court in Marsden refined the formula by using only the amount that the property actually appreciated during the marriage. Thus, the Moore formula, fine-tuned by the Marsden case became the Moore/Marsden formula. This formula is currently used to determine separate and community interest when the home was purchased before marriage by one of the spouses and the title was never changed to add the other spouse. In order used the Moore/Marsden formula, the following information must be obtained: (1) The purchase price of the home; (2) The amount the loan principal was paid down during marriage with community property; (3) The fair market value of the home at date of marriage; (4) The fair market value at the date of trial; (5) The down payment amount, the principal paid down before marriage and principal paid after separation.”
[LW Greenberg, California Family Law]
