DIVORCE can be a bit complicated specially if there are community assets and debts involved. Generally, accumulations and earning after the date of separation is each spouse’s separate property. What happens when you use separate funds to pay for community debts after the date of separation such as when one spouse continues to pay the mortgage to the family residence after separation? Does that spouse get credit for all those mortgage payment?
Normally when a spouse uses separate property to pay for community debt prior to the date of separation, there is a presumption that it is a gift to the community unless you can trace the separate property contribution and seek reimbursement under family code §2640. However, there is no presumption of a gift when separate funds are used to pay community debts after the date of separation. That is why the date of separation is very important and commonly litigated in highly contested divorce cases due to the difference in controlling presumptions. Instead, the trial court has discretion to order reimbursement of any separate property used to pay community debts after the date of separation under family code §2626. The reimbursement is commonly called Epstein credits after the case Marriage of Epstein. However in deciding whether to allow reimbursable credits, the Court has to consider the Epstein guidelines. Reimbursement for a particular debt is inappropriate where: a) The parties agreed payment would not be reimbursed. b) Payment was truly intended as a gift, even though made after separation.
c) Payment was made on account of a debt for the acquisition or preservation of an asset the payor was using, and the amount paid was not substantially in excess of the value of the use. d) The payments on account of preexisting community obligations constitute a discharge of the payor’s support duties.
How about the situation where one spouse has exclusive use of the community asset between the date of separation and the date the community no longer has an interest in the asset such as use of a car? The Spouse with the exclusive use of the community asset can be charged the reasonable use of that property under the Marriage of Watts. This is called Watts charge. So for example if the wife has exclusive use of the car, the husband may ask that the community be reimbursed by the wife for the value of the use of the car between separation and trial date or settlement date. The same thing can be applied when one spouse alone is staying at the family residence while the other spouse is paying for the house. The rules governing reimbursements can be confusing to lay people. It is best to obtain the representation of competent counsel.
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Attorney Kenneth Ursua Reyes is a Certified Family Law Specialist. He was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, P.C. is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail[email protected] or visit our website at Kenreyeslaw.com.
