The world of family law is full of complicated questions, many of them involving the division of property and money after a divorce. A common question family lawyers get is how is the down payment on a home before a couple is married split up in the divorce. It’s a good question. California is a community property state, and the division of assets accrued during a marriage is supposed to be equal in a divorce. Assets owned by the individuals prior to marriage however, remain the property of each individual.
So what happens when a couple purchases a house shortly before they get married and one of the spouses pays with money taken from a pre-marriage savings account? The money has been comingled in the community property of the house making it community property, right? The answer might surprise you. Luckily, there’s a very specific section of the law that deals with this question, and it’s found in California’s Family Code.
Keep reading to learn more about the division of down payments occurring in early or marriage pre marriage. If you have further questions, contact our office to see how we can help.
Before Discussing the Law, A Real Life Case
In 2005, the California Court of Appeal for the Fourth District considered the marriage of Kathi and John Weaver. The couple had purchased a house together, shortly before their 1985 marriage. John provided the down payment for the house — an amount of $10,600. The funds were taken from money he owned prior to his marriage to Kathi.
When a lower court ruled on the couple’s divorce, it awarded John a credit for the $10,600 down payment citing California Family Code 2640. On appeal, Kathi argued that the husband was not entitled to the reimbursement. The higher court disagreed, and to make a long Story short, California Family Code 2640 was sufficient to entitle John to a reimbursement of the down payment.
So what exactly does Family Code 2640 say? Keep reading to find out.
California Family Code § 2640
Section 2640 of the family code deals specifically with down payments as well as payments for improvements on property. Section (b) of the law states:
“In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement…the party shall be reimbursed for the party’s contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source.”
Subsection (c) meanwhile states:
“The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division.”
In simple terms, the law basically is pretty on the issue of reimbursing non-community down payments on properties purchased by married couples.
However, if you find yourself in a similar situation, it’s important to remember that it’s not as easy as asking nicely for reimbursement. Rather, there are a number of steps that must be completed in order to show the court you are entitled to the money. We’ll discuss that in a later section, but first, let’s look at how the money on the sale of a house might be split after factoring in a 2640 claim.
How The Money Is Split, A Hypothetical Situation
Let’s say you were able to go through the steps necessary to prove your 2640 claim. Here’s how a hypothetical situation might look:
Imagine the home was purchased when the couple is first married for $260,000. At the time of purchase, the husband invested a 20 percent down payment totaling $52,000. He chose to put as large a down payment as possible so that the couple could reduce their monthly payments.
A few years later, the couple divorces, and the husband successfully proves his 2640 claim during the divorce proceeding. The value of the house has nearly doubled to $600,000. What is he entitled to?
This is the theoretical break down:
1. The house sells for $600,000
2. The bank is repaid its loan of $208,000
3. The husband is reimbursed $52,000 for the down payment
4. Of the $340,000 left over, the money is split 50/50 in accordance with community property rules.
The obvious question at this point is how does a person prove their 2640 claim? We’ll tackle that question in the following section.
How Can I Show the Court I’m Entitled to Reimbursement?
If you put a down payment on a home using pre-community funds and you want to seek reimbursement during a divorce, you’ll first have to show the court that you did in fact make the down payment. This usually involves presenting escrow paper work.
Secondly, you’ll have to show the court that the money used to make the down payment is traceable to you. Did it come from a savings in which you were the sole name on the account? Was the money used to make the down payment a gift from family, or as part of an inheritance or trust? If possible, you should demonstrate your connection to the money with paper documents. This could include bank statements, check registers, or even signed declarations (more on that later).
While it’s not impossible to prove your 2640 claim without a paper trail, it’s always more helpful if documentation exists. However, if you are unable to locate the escrow paper work, you might be able to prove the down payment was made after locating documentation of a previous transaction. For instance, you might have sold another piece of property in order to purchase the house you and your ex spouse lived in during marriage.
What If The Money I Used As a Down Payment Was a Gift?
In a perfect world, you’ll be able to locate documents tied to a bank account; trust fund or tax records that clearly show the money trail of the gift. If this isn’t possible, it may be necessary to obtain a declaration, signed under oath, from the family member that clearly shows the money was given to you as a gift.
Reimbursements and other issues relating to the division of property and money can be some of the most complex aspects of family law. Ideally, people shouldn’t need to hire an attorney to get back what is rightfully theirs. Unfortunately, that’s not the world we live in.
A good lawyer should always be consulted in matters involving community property so as to minimize your chances of being denied what is rightfully yours. If you have questions about the division of community property, or another family law issue, contact our office to see how we can help.