another reason why you must understand the difference between separate property and community property; a few more words about tracing

In re. Marriage of Bonvino was decided in 2015.  This case highlights the importance of tracing in property characterization. I already talked about how understanding separate property and community property can mean the difference between financial ruin and keeping your money.  The Bonvino case shows why property division is not so straight forward as you might think and how a San Jose divorce lawyer can point you in the right direction when dealing with property division.

In Bonvino, husband bought a home in 1986 in Long Beach. Husband paid off the mortgage on his Long Beach home with his separate property funds (the money he earned before he got married).  Husband got married in 1993.  In 1996, husband and wife bought a home in Westlake Village and rented out husband’s Long Beach home. Husband again used his separate property funds (the money he earned before he got married), to make a downpayment for the Westlake Village.  The title to the Westlake Village home was held in husband’s name as “married man, as his sole and separate property.”  Wife did not sign the loan documents.  Wife signed a quitclaim deed to the Westlake Village home. Wife was not added to the title during the marriage, though, according to her, husband promised to add her to the title at some point.  The mortgage payments for the Westlake Village home were made from husband’s salary earned during the marriage, which was community property. Eventually, husband sold his Long Beach home and paid off the Westlake Village home loan with the sale proceeds.

Husband and wife started the divorce in 2005.  Characterization of the Westlake Village home was an issue.  Wife argued that the Westlake Village home was “presumed” to be community property because it was purchased during marriage. Wife also argued that the quitclaim deed she signed should be set aside because husband used undue influence to make her sign it.   Husband argued that the Westlake Village home was his separate property and the community interest should be calculated based on the interest community acquired as the result of lowering the mortgage balance. This is the Moore/Marsden formula which is used to calculate community interest in separate property when community property funds are used to pay the mortgage.  The Moore/Marsden formula will be discussed in detail in a separate post as this topic deserves a post of its own.

The trial court found that the Westlake Village home was community property because it was purchased during the marriage and husband had to be reimbursed for the separate property funds that he contributed towards the purchase (Family Code section 2640).  The trial court also found that the quitclaim deed should be set aside because husband did not show that he dealt with wife in good faith. Husband appealed.  The Court of Appeal affirmed in part and reversed in part the trial court’s decision.

First, the Court of Appeal acknowledged that property acquired during marriage is presumed to be community property unless it is traceable to a separate property source.I have explained that separate property is property acquired before marriage, by gift or inheritance, or earned/accumulated during the time spouses are living separate and apart.  The downpayment for the Westlake Village home was made with husband’s separate property funds but the loan was paid with community property funds.  The Court of Appeal explained that Family Code section 2640 applies when separate property funds are used to purchase community property, not when separate property funds are used to purchase separate property.  The Court of Appeal concluded that the Westlake Village home was husband’s separate property because it was purchased with husband’s separate property funds even though it was purchased during the marriage.  Therefore, Family Code section 2640 reimbursement did not apply.  The Court of Appeal further explained that husband’s payoff of the Westlake Village loan with the money he received after selling his Long Beach home gave husband an additional separate property interest.  The trial court was left to figure out husband’s separate property interest in the Westlake Village home and the community property interest based on the Moore/Marsden formula.

Here are the points to keep in mind: 1. The characterization of funds used to purchase property play an important role in characterizing the property as separate or community; 2. The presumption that property was purchased during marriage is community property can be overcome by tracing the source of the purchase funds to a separate property source; 3. When community funds are used to pay down the loan on a separate property home, the correct way to determine community property interest is the Moore/Marsden formula; and 4. Family Code section 2640 reimbursement is appropriate when separate property funds  were used to purchase community property.  In cases like the Bonvino case, the advice of a San Jose divorce lawyer becomes important to help you protect your interests.

Written by Ekaterina Berman, a San Jose divorce and family immigration lawyer. My goal is to provide caring and experienced representation in family law matters to every client.

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