Reimbursements in a Divorce Case

This issue is sometimes litigated in divorce cases. In California, there are many scenarios in which a Family Code (FC) 2640 analysis will apply. The most common one deals with reimbursement of a separate property down payment on a home.

For example, the residential home is purchased during the marriage and a down payment is made. One of the spouses uses a separate property source (savings prior to marriage, a gift from her parents) to pay the down payment. The wife files for divorce and wants reimbursement for the down payment made—is she entitled to that?

FC 2640 is the foundation for recovery of her down payment and a three-step review must be made. First, the amount of the down payment must be identified. Second, the source of the down payment must be clear. This is typically from the sale of a property owned prior to the marriage, money in a bank or investment account prior to marriage, or a gift from a third-party, usually the parents of the spouse. Third, evidence needs to be provided to prove the FC 2640 claim—tracing of it to a separate source.

First, you can work backward. Review your escrow paperwork from the purchase of the house and it should identify the amount of the down payment. Once you have the specific amount of the FC 2640 claim, paperwork of the source of the down payment should also be obtained. The tricky situation generally is when a spouse it was a gift.

Family members, friends, and business partners are usually the source of the monies.  I have had cases where this issue is heavily litigated. I have had a client state, it was a gift for both of them (thus a community) and not just solely to one spouse (separate property). A paper trail of the gift showing the intent is the strongest evidence but there are other ways to show intent if there is no documentation.

FC 2640 (b) also specifically states, “that unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party’s contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or adjustment for change in monetary values and many not exceed the net value of the property at the time of the division.”

Another scenario would be the husband using community savings for his law school education, therefore, does the wife deserve to be reimbursed for the amount incurred?This is codified in FC 2641 (a) which allows reimbursements made with community funds for education or training or for the repayment of a loan incurred for education or training, whether the payments were made while the parties were resident in the is state or outside this state.

FC 2641 (c) limits the reimbursement, “to the extent circumstances render such a disposition unjust, including but not limited to, the community has substantially benefited from the education, training or loan.” There is a rebuttable presumption that the community has not substantially benefited from community contributions if made less than 10 years before the commencement of the divorce proceedings.

I have had the issues above litigated in trial and all are factually intensive and requires documentary evidence to prove to the Court a valid reimbursement is due to a party. A thorough investigation and document production will be required.

Call my office at 310-601-7144 or email me at [email protected] if you have any questions or inquiries.

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