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Down Payments and Reimbursements

During happier times in your marriage, you and your spouse put your fortunes together and purchased a dream home. To secure the house of your dreams and get manageable loan payments, you or your spouse put down a nice sum of money as a down payment from separate funds. Separate funds are funds that a party earned prior to marriage, inherited or were gifted.

Unfortunately, things are less happy now in your marriage. You or your spouse has filed for divorce and something needs to be done with the house you and your spouse jointly purchased and once shared. You have some options. For example, you or your spouse could take the house and buy the other party out of his or her share of the community portion of the house. You could sell the house, or you could rent the house to tenants.

The first two options, one party buying out the other party of his or her community share of the property or selling the house, gives rises to a reimbursement claim under Family Code § 2640. The statute allows a party who can trace a down payment, payments for improvements to the property, and payments used to reduce the principal of a loan to a separate property source, to be reimbursed his or her separate funds before the spouses divide the sale proceeds. In other words, the spouse who paid the down payment on the house from his or her separate funds gets reimbursed “off the top” of any sale proceeds prior to the spouses dividing the remaining equity.

This means that the reimbursement claim may consume all of the sale proceeds. For example, if a spouse used $150,000 of his or her separate funds as a down payment on a house, and the house only has $100,000 equity, the spouse who paid the down payment would be entitled to all of the sale proceeds from the house even though both parties paid down the mortgage loan from their earnings after marriage. However, the spouse who paid the down payment, would not be entitled to more than the sale proceeds even if the proceeds are less than the amount of his or her down payment. The most he or she can get, is the amount the parties receive for the house after all costs and fees are paid.

If you have questions regarding dissolution of marriage, please contact our office to schedule a consultation. The Law Office of Family Law Specialist Richard E. Bawden also handles legal issues regarding adoption, annulment, collaborative divorce, divorce, domestic violence, legal separation, litigation, mediation, legal separation, paternity, spousal support, pre-marital and post-marital agreements. Dial 909.792.0222 or email us at [email protected] You might also want to get more information at our website: www.richardbawdenlaw.com. The Law Office of Richard E. Bawden serves the Inland Empire including Riverside, San Bernardino, Rancho Cucamonga, Fontana, Redlands, Loma Linda, Mentone, Yucaipa, Beaumont, Banning and Hemet.

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