If I’ve Used My Separate Property, Can I Get It Back?

Norris Family Law

This is one of the most frequent questions we are asked by our divorce clients.  It comes up in a variety of contexts:  “I used my premarital funds for the down payment on our house—can I be reimbursed in the property settlement?”;  “After we separated I paid our credit card balances from my own earnings—doesn’t my spouse have to reimburse me?”;  “I started our business during marriage with my separate funds—was that a gift to our joint property?”.  These are just a few of the situations where this question comes up.  Here are the answers to the fact patterns we see most often:

Separate funds used to acquire a joint asset during marriage:  The contributor in a divorce will be reimbursed, provided he or she can prove (generally by tracing via financial records) that the funds went into the asset.  A common scenario is when premarital funds (funds owned before the marriage, or acquired during the marriage by gift or inheritance) are used for the down payment on the family home, or to start a family business.  Under Family Code 2640(b), contributions made on or after January 1, 1984 will be reimbursed (again, to the extent he or she can trace) unless the contributor had made a written waiver of the reimbursement right.  The amount reimbursed is the amount contributed, without interest.  This applies not only to down payments, but also to payments for improvements, and payments on the principle (but not interest payments, or payments for taxes or insurance) on a loan that financed the purchase or improvements.  The reimbursement is capped at the amount of the equity in the property at the time of divorce. 

Separate funds used to pay joint debts after the parties have separated:  Generally the payor will be reimbursed.  This most commonly occurs where a person pays from his/her separate income (such as employment income earned after separation) makes payments on an existing community obligation (such as a mortgage on a parcel of real estate, or a balance on credit card).  There are exceptions, however—for example, when the payments are made to discharge a spousal or child support obligation; or when the payments were to preserve an asset (like a house or car) that the person is using, and the amount being paid is not significantly greater than the use value of the asset, such as its rental value.  (Note:  The last example is why generally a reimbursement is not given for mortgage payments on the residence the payor is living in after the parties separate.) 

Separate funds used for the other spouse to acquire separate property:  There is a right to reimbursement under Family Code 2640(c).  This most commonly occurs when a person owns real estate before marriage, and after marriage the other person uses his/her separate property funds to make payments on the mortgage, or to pay for improvements on the property.  Again, the reimbursement is only to the extent the contributor can trace the funds, the reimbursement is without interest, it is given only if there was no written waiver of the reimbursement right, and it applies to principle payments but not to interest payments or taxes or insurance.  The statute providing for reimbursement for this type of reimbursement (where funds are used for the acquisition of the other party’s separate property) was enacted relatively recently, and it is unclear whether it applies to contributions made before January 1, 2005. 

Separate funds used for living expenses during marriage:  There is no reimbursement for this.  If a spouse uses his/her separate-property funds to pay for such things as medical expenses, vacations, gifts, property insurance, property taxes, clothing, utilities, or other living expenses, the law presumes these were gifts to the community, and there is no right of reimbursement.

The four fact patterns described above are the most frequent ones we see.  Please consult your attorney for further information about the facts of your particular situation, and whether or not they give you a reimbursement right.

And remember that the reimbursement rules are those that apply in the absence of a valid written agreement of the parties that provide for an alternative ordering of their finances.  If they have a premarital or post-marital agreement, that agreement must always be reviewed to see if the parties have contracted differently.      

 

If Joint Funds Were Used To Pay An Obligation Of Just One Of Us, Can I Be Reimbursed?

In a prior article we looked at situations where one spouse has used his/her separate funds to pay for a joint asset or debt, and under what circumstances the person can be reimbursed if there is a divorce.  In this article we look at the reverse:  if funds owned jointly by the parties were used to pay an obligation of just one of the parties, does the law give a right of reimbursement?  

Here are some of the situations where we often see this issue.

Community (joint) funds used during marriage to pay debts incurred by one of the parties before marriage:  The community will generally be reimbursed for the payments (which is another way of saying the party who incurred the debt will reimburse the other party for one-half the amount paid).  This is true regardless of which spouse applied the joint funds to pay the debt, and regardless of whether the debt was paid in whole or in part.  However, the reimbursement claim must be made within three years after the party first acquires knowledge of the facts giving rise to the reimbursement right.  And, the claim must be made in the marital dissolution action (assuming the three years have not expired) or it is waived.

Payments for education:  The community may be reimbursed for funds spent for education or training of one spouse that substantially enhances that person’s earning capacity.  The payments include such things as tuition, books, fees, transportation, supplies, as well as payments on a student loan even if the loan was incurred prior to marriage.  Ordinary, day-to-day living expenses while a student are not reimbursed.  But—there is exception to the reimbursement right.  Reimbursement may be eliminated or reduced if the community has already benefited substantially from the education (a benefit which is presumed to have occurred if the payments were made over ten years ago).  Another exception is if the education has substantially reduced a party’s need for spousal support. 

Community property used to pay a spouse’s child support or spousal support from a prior relationship:  The community is reimbursed provided the spouse who incurred the obligation had his/her own separate property available to make the payment, but used community funds instead.  The community’s right to reimbursement must be exercised within three years after the party claiming the reimbursement has acquired knowledge of the facts giving rise to the right.  And, the claim must be made in the marital dissolution action (assuming the three years have not expired) or it is waived.

Community property payments related to separate-property personal injury claims:  There is a right to reimbursement from the damages received, when the personal injury damages are the separate property of the injured party, and expenses connected with the injury are paid with the other spouse’s separate property or with community property.  Note: this is a complicated area; the time of the injury, and the facts surrounding it, determine whether or not the damages are characterized by the law as the separate property of the injured party, or alternatively as community property belonging to both spouses (but often allocated to the injured party in a divorce).  And, worker’s comp awards are not within the definition of personal injury claims. 

The above fact patterns are the ones we most frequently see.  For further information about the facts of your particular situation, please consult with your attorney to determine your rights.