Paying Down the Community Line of Credit with Separate Property Funds - Is It a Reimburseable Event?
Statement of Issue: Is it a reimbursable event under California Family Code 2640 when one spouse pays down the community line of credit with separate property funds during the marriage?
Answer: This issue has never been addressed in a published decision in California.
Summary: There is one unpublished decision (4th District) which states that it is not a reimbursable event when one spouse pays down the community line of credit with separate property funds during the marriage. There is one published decision and two unpublished decisions where the Court allowed a spouse to be reimbursed for his/her separate property contributions to the pay down of the line of credit, but this issue was not raised on appeal.
Conclusion: This issue has not been definitively tested at the Appellate Court level. Based on the fact that there is no controlling legal authority for the Court to use in this case, there is no way to predict how the trial court will rule on this issue.
Summary of Cases:
No Reimbursement Claim Under California Family Code 2640
In Re Whelan (4th Dist., 2007) 2007 Cal.App.Unpub. LEXIS 6748 (pp. 14-16)
Facts: Wife sought reimbursement pursuant to California Family Code ("CFC") 2640 for using her separate property inheritance to pay off an equity credit line
Trial Court: found that Wife adequately traced her separate property inheritance to a joint checking account used to pay off the loan; however, the trial court concluded that Wife was not entitled to reimbursement because the claim did not fall within the purview of CFC 2640
Appellate Court (4th District): Upheld: “Not all expenses associated with acquisition or ownership of property are reimbursable and the types of separate property payments that are reimbursable are those which contribute to the acquisition of equity in the property either directly, or indirectly by paying the cost of improvements. When the couple opened the equity line of credit they borrowed against the existing equity in the Quail Canyon Property; thus, when [Wife] paid off the loan, the couple did not acquire new equity in the property. Accordingly, the trial court properly denied her reimbursement request because her payment of the equity line of credit did not contribute to the acquisition of property within the meaning of section 2640."
In re Marriage of Nicholas & Sparks (1st Dist., 2002) 104 Cal.App.4th 289, 295-297
Facts: The trial Court credited Husband $30,000 under CFC 2640 for money that his mother gave him to pay community credit card bills, which permitted the parties to qualify for a loan to purchase real property (otherwise their debt-to-income ratio would have been too high).
The Court of Appeal held that CFC 2640 does not provide for reimbursement of separate property used to pay preexisting community credit card debt; although the payment of the credit card debts facilitated qualification for a loan, the payments did not contribute to the acquisition of the property: “The debts paid bore no relationship at all to the property, and the obligation to pay them existed regardless of whether they acquired the property. Paying down the debts before purchasing [the property] reduced their consumer debt-to-income ratio, and allowed the parties to qualify for a loan, but made no contribution to the amount of equity they acquired … In short, [Husband’s] separate property funds were not used to acquire [the property], but rather to pay off community debts that preexisted the acquisition of [the property]."
In re Marriage of Lange (2d Dist., 2002) 102 Cal.App.4th 360, 365
Holding: “Wife also would not be entitled to reimbursement for separate property funds spent on family living expenses."
No Reimbursement for CP contributed to SP HELOC
In re Marriage of Nelson (6th Dist., 2006) 139 Cal.App.4th 1546, 1557
Holding: There is no reimbursement under Moore/Marsden for community property funds contributed toward the payment of a home equity loan unrelated to the acquisition of the property (per In re Marriage of Branco in order to qualify for reimbursement, the home equity loan would have had to be “substituted in whole or in part for the purchase money loan").
Reimbursement Under CFC 2640
In re Marriage of Wolfe (3d Dist., 2001) 91 Cal.App.4th 962
Facts: During the marriage, the parties established a $60,000 line of credit secured by a second deed of trust to build a swimming pool at their residence. In March 1994, the owed more than $44,000 on the loan. On April 4, 1994, a month before filing for dissolution, Wife paid off the credit line debt with separate property funds from her business savings account. The source of the funds in that account was a $90,000 gift from her mother.
In June 1994, after filing for dissolution, Wife took withdrew the entire $60,000 from the line of credit and deposited it into her separate savings account. She used approximately $45,000 to repay the separate property funds she used to pay off the line of credit. The line of credit was repaid in escrow on the sale of the residence which took place one year before trial. The trial held that the line of credit was community debt to be divided equally between the parties and the Court ordered Husband to repay one-half of the $15,000 he received from the line of credit to Wife.
Wife was never ordered to repay the $45,000 that she reimbursed herself for and this issue was not raised on appeal.
In re Marriage of Casazza (2d Dist., 2010) 2010 Cal.App.Unpub. LEXIS 3842
Facts: Prior to marriage the parties purchased a home. After the date of marriage, the parties took out a home equity line of credit. They paid $50,000 to reduce the balance owed on the equity line; the source of funds was the sale proceeds from Husband’s SP condo and Wife’s SP investment accounts.
Holding: The trial Court ordered reimbursement for the parties’ respective contributions to the $50,000 post-conversion (i.e., after transmuted to CP) home equity line payment.
This issue was not raised on appeal.
In re Cheryl Lynn & Hugh James Howard, (6th Dist., 2009) 2009 Cal. App. Unpub. LEXIS 7684
Facts: Pursuant to the Judgment for Dissolution, Wife was owed reimbursement for one-half of the $ 24,000 debt paid on Husband’s premarital home equity line of credit secured on the marital residence.
This issue was not raised on appeal.
In re Marriage of Cochran (4th Dist., 2001) 87 Cal.App.4th 1050
Holding: Husband was entitled to reimbursement for the school fees that were required to obtain a building permit for construction of the couple’s home (reimbursable as a home improvement expense).
In re Marriage of Vigneau (4th Dist., 2004) 2004 Cal.App.Unpub. LEXIS 9292
Facts: to complete the purchase of the marital residence, Wife borrowed $60,000 from her parents. Thereafter, Wife received a check for the sale proceeds of her separate property home, from which she repaid the funds she had borrowed from her parents.
Holding: the trial Court characterized the loan from Wife’s parents as a “bridge loan" – the $60,000 “loan" was simply a temporary substitute for the proceeds of the sale of Wife’s SP home, which was clearly Wife’s SP.