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Characterizing and Dividing Real Property in Divorce

This is the third in a series of blogs in which I address both common and unique issues parties can face when dividing the marital residence. The focus of this blog is on reimbursements for improvements to real property.

Example One: community funds used to improve the separate property of one spouse.

Wanda inherits a home in Malibu during marriage. Pursuant to Family Code § 770 the Malibu house is Wanda’s separate property. Harry and Wanda later decide to add a swimming pool to the Malibu house. They use $50,000 of community funds from a joint savings account to pay for the pool. A few years later, Harry and Wanda divorce.

Harry argues that he should be reimbursed for ½ of the cost of the pool because community funds were used to improve Wanda’s Malibu house.

Wanda argues that Harry gets nothing because the Malibu house is her separate property and Harry consented to the use of community funds to build the pool. Wanda also argues that any increase in the value of the house resulting from adding a pool is much less than the actual cost of the pool.

Under Marriage of Wolfe, Harry would prevail. The court reasoned that “there is no logical basis for denying a spouse reimbursement for a community-funded improvement to the other spouse’s separate property.”

How much is Harry entitled to?

If the improvement did not enhance the property’s value, Harry is limited to reimbursement of ½ CP funds spent on improving Wanda’s Malibu home. However, if the improvement resulted in an increase in the value of the home, then the community is entitled to a pro tanto interest in the property (proportionate share).

Example Two: separate funds used to improve community property.

In this example, Harry and Wanda purchase the Malibu home during marriage with community funds. Wanda then inherits $50,000.00 and uses her separate funds to add a swimming pool.

Upon divorce, is Wanda entitled to reimbursement or a pro tanto interest?

Where separate funds of one spouse are used to improve community property, the contributing spouse is entitled to straight reimbursement of the separate funds expended, unless the spouse has signed a written waiver of the right to reimbursement. However, the spouse does not receive a pro tanto share in the appreciation. It is essentially an interest-free loan to the community.

Improvement vs. Repair?
This may seem like an easy distinction. However, I find many family law attorneys arguing this point in their client’s favor no matter how far-fetched the claim. I recall one case a few years ago in which the couple lived in husband’s separate property residence. During marriage the community paid down the principal balance on the mortgage (Moore/Marsden calculation from Blog #2 in this series). Additionally, they used approximately $15,000 of community funds to replace the windows throughout the entire two-story home with double-pained, energy-conserving windows. When I added the $15,000 as reimbursement to the community, opposing counsel disagreed. When he noticed my puzzled look, he went on to explain that the $15,000 spent to upgrade the windows was a “repair” rather than an “improvement.” He further argued that the upgraded windows did not increase the value of the home in any significant way. I disagreed with his position.

Remember that an improvement does not necessarily enhance the value of the home. However, the only significance is whether the community share is (1) the cost of the improvement, or (2) the value added. In such a scenario, let common sense be your guide. If the neighborhood kids throw a rock through your window, you replace the window. That is a “repair” or “maintenance.” If you upgrade all the windows throughout the entire house when the windows are all functioning, that is an “improvement.”

Some expenditures may be more difficult to define. In such cases, your attorney will simply have to make the best argument and hope the Judge agrees with your position. In the alternative, you may propose a number in the middle, save some legal fees for both parties, and give your Judicial officer one less difficult decision to make that day.

In the next blog I will discuss the effects of transfers of title during marriage. If you have questions regarding reimbursements for (1) community funds used to improve the separate property of one spouse and (2) separate funds used to improve community property as it relates to divorce, please contact our office to schedule a consultation. The Office of Family Law Attorneys Bawden & Kochis handle all family law legal issues. For assistance in these areas, telephone (909)792-0222 or email us at [email protected]

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