Legal Blog

Seeking Reimbursements for Separate Property Contributions to the Community

In California, all property acquired during marriage is presumed to be community property.[i] However, quite frequently spouses use separate property funds to facilitate community acquisitions. This is especially likely to occur early on in the marriage when most of the assets owned by the spouses will be their respective separate property. However, it can happen at any time, so long as separate property funds are being used toward a community property estate acquisition.

In California divorce proceedings, this often arises when a spouse contributes a large amount of his or her separate property savings for the purpose of a down payment on the family home.

To the extent a spouse uses separate property funds to acquire community property (including down payments, payments for improvements, and payments that reduced the principal of a loan used to finance the purchase or improvement of the property) that spouse is entitled to reimbursement for those contributions in the event of dissolution. [ii]  However, the spouse must be able to prove them.

Say, for example, a couple marries and then buys a home. One spouse uses an inheritance, separate property funds, to pay the down payment. The couple then pays the mortgage with their earnings during marriage.

Because the couple purchased the house during marriage, the house is presumptively community property. At dissolution, however, the spouse who contributed the inheritance to make the down payment would be entitled to reimbursement of that amount—provided he or she could prove the amount by tracing the down payment back to its separate property source. The spouse seeking reimbursement carries the burden of proof.

Tracing, accordingly, often becomes a central issues in dissolution cases, and often requires a forensic accountant. If separate funds commingle with community funds, the spouse seeking reimbursement has the burden to show—via tracing—that the money in the account (sticking with our inheritance example: at the time the down payment was made) was the purported separate property funds.

This means that keeping a complete set of records contemporaneously with any separate property contributions to community property acquisition is key.

It should be noted that the spouse seeking reimbursement would only receive dollar-for-dollar reimbursement for the separate property funds contributed. The spouse does not receive a pro rata share in any appreciation of the community asset. This differs from a Moore/Marsden analysis (see our blog post discussing Moore/Marsden ) in that respect.

[i] Fam. Code § 760.

[ii] Fam. Code § 2640.