One of the most complicated parts of any divorce, legal separation, or dissolution of domestic partnership can be dividing the house or other real property owned by either or both parties jointly.
The issue can be made even more complicated when one spouse or partner purchases the property before marriage and has a mortgage which is partially paid off during the marriage or partnership. California Family Code Section 2640 provides a right to reimbursement for separate property contributions to community property and for community property contributed to the separate property of one spouse. The current state of California law mandates the use of a formula to calculate each party’s interest in real property when acquired prior to the marriage by one spouse or partner. The issues is that the party who originally purchased the asset has a pre-marital separate property interest in the property; however, community property funds were used to further pay down (continue to acquire) the property thus creating a community property interest. This can be even further complicated by a mid marriage refinance and/or post-separation charges and credits. This article will not discuss post separation charges and credits.
The formula used by California courts to calculate each party’s interest in real estate is known as Moore Marsden or Moore-Marsden or Moore/Marsden. These are the names to two (2) California cases involving; you guessed it, dividing real property at divorce when one spouse purchased the property before marriage. In re Marriage of Moore (1980), 28 Cal.3d 366 and In re Marriage of Marsden (1982), 130 Cal.App.3d 426. In Marriage of Frick (1986), 181 Cal.App.3d 997, the Court held the Moore Marsden formula should also be applied to commercial properties.
The formula discussed in the Moore and Marsden cases can be a bit confusing but I will break it down for you here in more simplistic terms. The formula goes like this, the purchasing spouse receives a pro tanto interest in the increase in equity in the property during marriage based on a percentage calculated by dividing the down payment paid by the purchasing spouse plus the original mortgage minus the amount the community paid down the mortgage by the purchase price of the property multiplied by the marital appreciation plus the down payment plus the purchasing spouse’s pre-marital principal reduction plus pre-marital appreciation. The community’s interest is calculated by adding the marital payments towards principal to the community’s pro tanto percentage multiplied by the marital appreciate in the property.
You may be asking what about the interest payments (which early on make up most of the mortgage payment), the taxes, which in California can be substantial, and utilities and maintenance. California Family Code Section 2640(a) specifically excludes those expenses from reimbursement claims because they do not technically contribute to the acquisition of the property. That was a lot of words, so I’ll give a simplistic example to illustrate the formula.
Original Purchase Price = $100,000
Down Payment = $20,000
Original Mortgage = $80,000
Pay Down of Principal Before Marriage = $10,000
Pay Down of Principal After Marriage = $15,000
Value of Property At date of Marriage: $150,000 (ie appreciation of $50,000 between date of purchase and date of marriage)
Value of Property at Date of Division: $350,000 (ie appreciation of $200,000 during the marriage)
Purchaser’s Pro Tanto Interest:
|Original Mortgage||+ $80,000|
|Marital Mortgage Pay down||– $15,000|
|Purchase Price||÷ $100,000|
Community’s Pro Tanto Interest:
|Marital Mortgage Pay Down||$15,000|
|Purchase Price||÷ $100,000|
Purchaser’s Interest in the Property:
|Interest in Marital Appreciation||(85% × $200,000)||$170,000|
|Down Payment||+ $20,000|
|Pre-Marital Principal Pay Down||+ $10,000|
|Community Interest (One Half)||(15% × $200,000 × .5)||+ $15,000|
|Marital Mortgage Pay down (One Half)||($15,000 x .5)||+ $7,500|
|Pre-marital Appreciation||+ $50,000|
Other Party’s Interest in the Property:
|Interest in Marital Appreciation||(15% x $200,000)||$30,000|
|Marital Principal Pay Down||+$15,000|
|One Half of Community Interest||÷ 2|
As you can see from this example to do a Moore Marsden calculation you need the value of the property at the date of marriage and at the date of division. The value for the date of division is generally easy to obtain by an appraisal or the actual selling price if it gets sold. However, the date of marriage value could be more difficult to obtain especially if the parties owned the property for a long time. Generally a specialist or two (2) in historical appraisals must be engaged. The original mortgage and balance as of the date of marriage are generally easy numbers to obtain unless very old.
The division of real property can be made even more complicated when substantial improvements were made during a marriage or when the property was refinanced and the other spouse put on title a situation sometimes called a Reverse Moore Marsden calculation. Click here for a detailed article on calculating each spouse’s interest in a Reverse Moore Marsden situation.
Division of real property in a divorce is one of the most complicated and important division of assets and can go well beyond the issues discussed in this article. An experienced and competent San Diego attorney is key to obtaining a fair and accurate division of your real estate. Matthew Mesnik of Mesnik Law Group, Inc. has helped numerous clients divide their homes and properties and is experienced in complicated divisions as described in this article. Contact us now for a free consultation.