How is a Residence Divided in a Divorce?

In future articles, we will flesh out some of the many nuances in California community property law. One of the nuances we will cover is the division of real estate. This article will be the first in a series of articles on how a residence is divided.

A common fact pattern in divorces is how a residence is divided if purchased before marriage. Let’s apply the general rules discussed above. First, if the house is purchased before marriage, the community property presumption will not apply Remember, that presumption only applies if an asset is acquired during the marriage. Therefore, the house will be classified as separate property. Simple enough, right? But what if the residence was purchased before marriage, with a mortgage, and the spouse made mortgage payments during the marriage?

The “community” begins on the date of marriage, which means funds earned during the marriage are "community". When community funds (i.e. paychecks) are used to pay the mortgage on a residence purchased before marriage, the community gains an interest in the residence in proportion to the principal loan balance reduced during marriage. This was decided in the landmark case of Marriage of Moore and fleshed out in subsequent appeals court cases. The formula used to calculate the percentage is beyond the scope of this article.

Therefore, although the residence in this example is separate property, the community starts gaining an interest as mortgage payments are made during the marriage from community funds. At the beginning of a marriage, this percentage is usually not significant. As the years progress, however, the percentage inevitably increases because community funds continue to reduce the principal balance and increase the community percentage.

When dividing the residence, the appreciation is likewise allocated according to the percentage interest. For example, if the community has a 20% interest, 20% of the appreciation between the date of marriage and the date the property is divided will be allocated to the community, and 80% as separate. In total, the community would receive 20% of the appreciation plus the principal balance reduced by community funds.

This is one way the community can gain an interest in a residence that is separate property and is one example of the many nuances in California’s community property laws.

For more information, contact Hundal Family Law at (916) 864 3944. You can also visit us at www.hundalfamilylaw.com.