This is the fifth 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 credits and charges when one party has exclusive possession and use of the marital residence after the date of separation.
Disputes often arise regarding who is responsible for the mortgage, taxes, insurance and maintenance when one party moves out of the marital residence and the other party remains in the residence.
Epstein Credits: When one spouse uses his or her separate property for community purposes after separation, the party is generally entitled to reimbursement. Marriage of Epstein (1979). Reimbursement for separate property funds to pay the mortgage after separation, unlike that for pre-separation payments is not governed by Family Code § 2640. Thus reimbursement is not limited to principal reduction payments and can include property taxes, insurance and maintenance. However, the Epstein Court notes that reimbursement should not be ordered when it would have been unreasonable to expect reimbursement, such as:
- There was an agreement between the parties that the payment would not be reimbursed;
- The paying spouse truly intended the payment to be a gift;
- The payment was made on a debt for acquisition or preservation of an asset the paying party was using, and the amount paid was not substantially in excess of the value of the use; and
- The payment constituted a discharge of the paying party’s spousal or child support duty.
Watts charges: The community may be entitled to reimbursement for the reasonable value of a party’s exclusive use of community property after separation. Marriage of Watts (1985). When the mortgage payments are made by the spouse occupying the residence, a claim by the other spouse for reimbursement for the value of the use will generally offset a claim by the spouse occupying the residence for reimbursement for the payments. There will only be a net gain for the spouse requesting reimbursement when the value of the use is substantially greater than the payments.
Jeffries Credits: This is the double hit to the spouse occupying the residence. In Jeffries, the wife had possession of the marital residence post separation and husband was paying the mortgage. The Court ordered that the wife reimburse the community for the reasonable rental value of the property and required the community to reimburse husband for the postseparation mortgage payments.
Summary: When one spouse has exclusive use of the marital residence post separation, it helpful to obtain a fair market rental value of the property. If the occupying spouse is paying the mortgage, and there is not a substantial difference between the rental value and the mortgage, then it will usually be a wash. On the other hand, if there is a substantial difference between the rental value and the mortgage, taxes and insurance, then charges or credits may apply, unless it falls under one of the above exceptions. When I represent the out-spouse, I generally put the other party on notice as soon as possible that Watts charges/ Epstein credits may apply. When I represent the in-spouse, I will look at the rental value and the payments to see if there is a disparity that may expose my client to liability for reimbursement to the community. If mortgage payments are made in lieu of support, I will make sure this is clearly defined in the temporary support orders.
Questions about Watts, Epstein, Jeffries Credits? Do you need more information on a variety of family law topics? 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]