Question: I contributed money which I saved before the marriage into purchasing a property during the marriage which I acquired with my spouse in joint name. During the marriage we cashed out most of the equity in that house to purchase several properties. The first house we purchased no longer has a lot of equity due to the cash out refi but the subsequent houses we purchased has a lot of equity. My spouse just filed for divorce. Can I seek reimbursement for my separate money that I contributed from all the subsequent houses we purchased during the marriage?
Answer: Family Code Section 2640, subdivision (b), provides, “In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party’s contributions to the acquisition of the property to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or adjustment for change in monetary values and shall not exceed the net value of the property at the time of the division.” Section 2640, subdivision (a), provides, “‘Contributions to the acquisition of the property,’ as used in this section, include downpayments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property but do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.” Under Family Code Section 2640, the separate property contribution is reimbursed prior to the division of property. In re Marriage of Witt (1987) 197 Cal.App.3d 103, 105, 108–109, 242 Cal.Rptr. 646; In re Marriage of Tallman (1994) 22 Cal.App.4th 1697, 1698–1700, 28 Cal.Rptr.2d 323; Hogoboom & King, Cal. Practice Guide: Family Law 2 (The Rutter Group 1997) ¶ 8:466, p. 8–118.1 In other words “A reimbursement award comes off the top of the property item in question ***859 **1127 before the [property] interest in that property is divided.” (Italics omitted.) ].) If there is insufficient equity at the time of dissolution in the property to which the contribution was made to fully reimburse the contribution, the entire asset is awarded to the contributing spouse. In re Marriage of Witt, supra, 197 Cal.App.3d at pp. 105, 108–109, 242 Cal.Rptr. 646.
The right of reimbursement under family code section 2640 goes further than the initial property purchased during the marriage. In Marriage of Walrath, 17 Cal. 4th 907, (1998), the California Supreme Court held that a spouse’s reimbursement right upon dissolution for a separate property contribution to a property acquisition carries through to other property subsequently acquired with proceeds from original acquisition. Marriage of Walrath, 17 Cal. 4th907, (1998). In other words, you can seek reimbursement for the separate money you contributed, not only from the initial property purchased jointly during the marriage but also from any subsequent properties you were able to purchase during the marriage by refinancing the initial property provided you can trace the separate funds through the various purchase transactions.
However, your right to reimbursement is limited to the separate money you actually contributed. You do not get to share in any of the of appreciation of the property houses. Any appreciation above your separate contribution gets credited to the community. Where spouse contributes separate property to an acquisition of property, and proceeds from original acquisition are later used to acquire other property, spouse’s recovery of proceeds from subsequently acquired property is limited in dissolution proceeding to the amount of spouse’s original contribution that can be traced to that subsequently acquired asset; community is entitled to any appreciation in that asset above the amount necessary to reimburse spouse for original separate property contribution.Marriage of Walrath, 17 Cal. 4th 907, (1998).
In Walrath, Husband contributed $146,000 of his separate property into a house purchased jointly in California during the marriage while Wife contributed $20,000 of her separate property into that house. During the marriage, the couple refinanced and took out $180,000 which was used to purchase a house in Utah and a house in Nevada. Due to the refi and due to a decrease in real estate prices, the California property only had $1,000 in equity which was clearly insufficient to reimburse husband and wife during their divorce of each one’s separate property contribution. However, the couple was able to get reimbursement from the subsequently purchased Utah and Nevada property by tracing their respective separate property contributions to the subsequently purchased property.
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Attorney Kenneth Ursua Reyes is a Board Family Law Specialist. He was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, APLC is located at 3699 Wilshire Blvd., Suite 747, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail firstname.lastname@example.org or visit our website at Kenreyeslaw.com