Separate Property Reimbursement for Home Improvements: The Story of Michael & John
Michael acquired a home before his marriage to John. It was his pride and joy. He took great pride in the all the fine detail and architecture of his Victorian home, though he bought it in a somewhat beat up condition.
John had extensive savings from before the marriage. He worked hard to accumulate those funds, working obscene hours during his career as an investment banker. He kept those funds in a separate account from the one he shared with John. He never mixed his savings with joint money.
During the marriage, John paid for significant improvements to the home using some of his savings. They made an addition to the home, built a wraparound deck and repainted the whole exterior. These improvements greatly added to the home’s value and allowed the couple to enjoy the home in high style.
Fast forward seven years. Michael and John’s relationship soured and John filed for divorce. Now he wants his money back for all those improvements.
Family law comes to John’s aid.
First, some definitions. California is one of 6 community property states. Community property is all the income, assets, and debts acquired from the date of marriage to the date of separation. Community property is split 50/50. Separate property is everything accumulated prior to the date of marriage, after the date of separation and through gift, inheritance and bequest. Separate property can’t be touched by the other spouse in divorce proceedings.
Here, Michael’s home is separate property because he acquired it before marriage. John’s pre-marital savings are his separate property too.
A party’s separate property contributions to the other’s separate property creates a prima facie statutory right of reimbursement. (Cal. Fam. Code, § 2640; Marriage of Cochran (2001) 87 CA4th 1050, 1057 [citing text].) The right of reimbursement used to apply only to separate property contributions to community property, but now there is a similar right of reimbursement for separate property contributions to the other party's separate property.
The contributions to the acquisition or improvement of any property in the separate property estate of the other spouse must be reimbursed in the property division proceeding, unless there has been a transmutation in writing or the party who made the contribution has waived that right in a signed writing. (Cal. Fam. Code, § 2640). A transmutation is a writing that transforms community property to the property of one spouse, the separate property of one spouse to community property, or the separate property of one spouse to the separate property of the other spouse. Transmutations are governed by Family Code §850, et seq. Absent a waiver or transmutation, the right of reimbursement is absolute. (Id.)
The statute defines what constitutes reimbursable “contributions”. § 2640(a) specifies that payments for improvements are expressly included. According to the statute:
Contributions to the acquisition of property, as used in this section, include downpayments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property but do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.
(Cal. Fam. Code, § 2640(a).)
In John and Michael’s case, there was neither a transmutation or a waiver of John’s right to reimbursement. Thus, John’s right to reimbursement is absolute. He gets his money back.
If reimbursements are an issue in your divorce case, it is wise to have counsel to help you document the claim and argue the legal authorities in the divorce process. Schedule a free initial consultation with the Law Offices of Jane Migachyov now.