Generally, in a marriage, the big-ticket items acquired are the house and pensions. So, in dividing up the assets it makes sense to take a close look at the division of assets in a marriage.
There are basically two types of reimbursements on a residential house during marriage. Reimbursement for separate property money contributed to buy or improve a community property house or reimbursement to the community for money paid on the mortgage of a separate property house. If a house is purchased during the marriage, the equity is generally all community property. However, sometimes the community property house is purchased with a down payment from the separate property of one of the spouses or their parents.
The community owes a reimbursement of the separate property money to the spouse who contributed the separate property money. In California, this is called a Family Code 2640 reimbursement. The separate property money is entitled to a dollar-for-dollar reimbursement for the money contributed. More often than not if the money was contributed from the parents of spouse A, spouse B will claim the contribution was a gift.
People sometimes enter marriage later in their lives and often bring assets either through inheritance or their own work. Often the couple lives in the house and the community, i.e., the paycheck of the spouses pays down the mortgage. The paydown of the mortgage gives the community an interest in the separate property residence. In California, this is called a Moore-Marsden interest in separate property real estate.
Normally the community does not acquire a Moore-Marsden interest in the property if the mortgage is interest-only, also known as an Adjustable-Rate Mortgage or ARM. The rate of the mortgage paydown is normally affected by the age of the mortgage.
In the early life of a mortgage, the payor mortgage payments go mainly towards interest and a portion toward the principal. Later in the life of the mortgage, a larger percentage of the mortgage payments go towards principal down payment. So, if the community is servicing a mortgage later in the mortgage life cycle the community will acquire a larger Moore-Marsden interest. Here is the catch: If the owner of the house goes back to live in his/her separate property house, the owner may have to pay rent to the community for interest the community acquired during the marriage in the owner’s separate property house.
