Separate Property Reimbursement

Before January 1, 1984, the California Supreme Court established a “gift presumption.” In other words, the use of separate property by one spouse to acquire community property was considered a gift to the community unless it could be proved that the parties agreed it was not a gift. See vs. See (1966) 64 Cal.2nd 778, 785.

A common fact pattern is found in Marriage of Lucas (1980) 27 Cal.3rd 808, 816, where a wife used her separate property for the down payment and improvements to a house the parties acquired in joint title. Following the gift presumption of See, the Lucas court held that wife’s separate property contribution was a gift and that she had no right to reimbursement.

In response to Lucas decision, the legislature enacted Civil Code Section 4800.2 giving the party contributing separate property the absolute right of reimbursement absent a waiver. Section 4800.2 turned into Family Code Section 2640 when the Family Code was enacted effective January 1, 1994. Section 2640 was then amended in 2004 to add reimbursement for separate property used to acquire separate property for the other spouse.

Rather than a presumption of a separate property gift per See and Lucas, we now have a statute by which the party contributing separate property has an absolute right of reimbursement absent a waiver. However, before closing the discussion on separate property reimbursements, it is important to read Section 2640. In subsection (a) we are told that contributions to the acquisition of property include down payments, payments for improvements and payments that reduce the principal of a loan to finance the purchase or improvements. It does not include payments for maintenance, insurance or taxation of the property. In addition, subsection (b) tells us that the reimbursement shall be to the extent the separate property claimant can trace the contribution to a separate property source (proof) and that the amount to be reimbursed shall be without interest and may not exceed the net value at the time of the division. In other words, if the property is sold the first payment is to reimburse the separate property contribution and the balance is divided equally as community property. However, if the sale proceeds are insufficient to reimburse the separate property contribution then the separate property spouse does not receive his or her full contribution, but only to the extent of the net proceeds.

As with many family law issues, separate property reimbursements can be complicated. First is the problem of proof and second is the application of these rules to different sets of facts. This blog is not intended to give legal advice and anyone with a separate property claim is advised to consult with a family law attorney.

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