I reside in the state of California . In the event of divorce will the property still be deemed separate property or does it become community property because her now being on title ? The house is worth about $ 150K less that what I purchased it for , so there has been no equity built since the original purchase . We did use joint account funds to make the monthly payment .
Your question poses some complicated issues involving separate property, transmutation, community property interests, and rights of reimbursement to you of the value you contributed to the house at the time that you changed title from separate to joint (stated differently ---at the time that you changed the character of the property from separate to community by adding the spouses name to the title.
Generally speaking, at all times before marriage , all property owned and acquired is characterized as your separate property. It remains separate property even after marriage until you change it. You state that you put her on title, but you did not say why. The “why” is relevant in determining whether the property went from separate to community or remained separate despite title change. If you put her on title for convenience purposes (to help to qualify for something for something) but NOT with the intent that transmute your property from separate to your community property with her, you may be able to argue it remained separate property. There are various proof problems attached to this type of position, and you would need to consult with an experienced family law attorney to know your options and likelihood of success.
Even if you are success in arguing it remained separate property when title changed, there are going to be issues of the community having a right of reimbursement for community funds used to pay a separate property debt.
In the divorce proceeding, if you are not successful in arguing it remained separate property when title changed, then you are going to have a right reimbursement of your separate property contributions made toward the purchase of the property up to the time the property is changed to community property. For example, if it is worth $150,000 now, and at the time title changed it was completely paid for and worth $100,000 – per Family Code Section 2640, you would have a right to be reimbursed the $100,000 value of the property . the remaining $50,000 would presumably be considered community and split 50/50. That is not the end of the analysis because you mentioned that community funds were used to pay a mortgage. You did not say whether they were used to pay a mortgage before the title transferred. To the extent the community funds were used to pay down a separate property mortgage, then the community likely has interest in the separate property.
This is not intended as specific legal advice, but only a general statement of issues that arise in similar situations . You will need to retain an experienced family law attorney who is knowledge about transmutations, rights of reimbursement ( FC 2640) , Moore/Marsden, etc.
Last, in answer to your question about whether at divorce does the property turn into community property, the answer is no, but the general principals discussed above will apply along with a host of others.
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Martha Bronson, Esq.
Accord with Ms. Bronson's excellent response. Most likely, you transmuted (converted) the house to community property, but you are likely entitled to reimbursement of the equity that you had in the house at the time of the transmutation, before the balance (if any) of the equity in the house would be divided 50/50. You will need the services of an expert real property appraiser to determine the fair market value of the house at the time of the transmutation, and your mortgage statement will reflect the secured obligation at that time, to determine your separate property equity. If you refinanced the house during the marriage, it gets much more complicated - likely requiring the services of an experienced Family Law Attorney and/or Forensic Accountant to determine the separate and community portions - and in any event, you would best be represented by an experienced Family Law Attorney to advise and represent you in your divorce.
You transmuted the property when you put your spouse on title (albeit, unknowingly). If this was due to a re-fi during your marriage, then your situation is a common one. Loan brokers are not attorneys and were (and still are) ignorant about the legal implications of re-fi's. People routinely and unknowingly transmuted their separate property into community property prior to the housing crash. If you were one of those people, I strongly suggest that you consult with an experienced family law attorney to advise you of your rights.
My hunch is that if you are upside down $150K, then the characterization of the property ( i.e., community or separate) really doesn't make much difference. If you bought the house for $150K more than it's currently worth, then you probably don't have a right to any reimbursement, because Family Code 2640 states, in relevant part: "the amount reimbursed shall be without interest or adjustment for change in monetary values and MAY NOT EXCEED THE NET VALUE OF THE PROPERTY AT THE TIME OF THE DIVISION."
The real question is what you are going to do about dividing the $150K of community DEBT? I can think of many creative ways to negotiate a solution to this situation, and any smart and savvy attorney should be able to provide you with a range of options as well. I suggest you speak with an experienced family law attorney in your area for guidance--do not attempt to do this one alone. Good luck.
Divorce is the process of formally ending a marriage. Divorces may be jointly agreed upon, resolved by negotiation, or decided in court.
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