California courts use complex Moore-Marsden rule to calculate community property interests and separate property interest in case of real property division in a divorce proceedings. Many people going through divorce pro per find this calculation is hectic. Before we go on, bear in mind that if this legal guide does not apply to situations that you have a prenuptial agreement or a transmutation of some sort to recharacterize the house. The prenuptial or the transmutation, if they are valid, would always control. This guide would only intend to explain one thing, how to calculate community property interest when the house was bought as a separate property. There are other situations, for example, the house was bought as community property but separate property fund was used to modify or improve the house, in which one party may get reimbursement, but those are separate matters. When one spouse, e.g., the husband, bought a house using his separate property fund to pay for the down payment, the house is characterized as his separate property. When the couple got married the house would maintain as husband's separate property since change in form would not change the character of the property. However, if the couple paid the mortgage using their incomes, the community will acquire some interest.
Example: H and W married for 20 years. H bought a house right before marriage, paid 20% down payment, and took a mortgage of $200000, for the purchase price of $240000. H and W divorced at the end of 20th year. H and W refinanced 1 year before divorce. Upon divorce, the house was priced at $400000, with a mortgage of $50000. Now the calculation. Since H bought the house before marriage, it is his separate property. Since H and W paid down the mortgage using their own income during marriage, the community would acquire some interest in the house. H's separate property interest in percentage term would be 20% since that is only money coming from H's separate property fund. Upon divorce, the equity in the house is $350000 ($400000 less $50000 mortgage). H's separate property interest in the house is 20% multiplied by $350000, which is $70000. The remaining $280000 ($350000 less $70000) will be community property, and each spouse is entitled to half. At the end, H would get $210000. W would get $140000.
This is a very simplified example. In real life, there are many ways that it would be changed. For example, if H bought the house some years before marriage and had already paid down the debt before marriage, or if H lived in the house after divorce and paid down the debt more, his percentage will change and make this calculation very complex. As mentioned above, if one spouse used his or her separate property fund to improve the house, then there is another calculation to reimburse the improving spouse. Due to the fluctuation of the house market in California, many couple saw their houses drop in value dramatically. One key question is which date to use to appraise the house. What if the couple entered into a legal separation for two years and saw the house value dropped by half? These complex questions must be answered by an experienced family law attorney.
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