In California family law, if a spouse owns property prior to marriage, that property remains their separate property after marriage. If they sell the property, any proceeds from the sale are considered separate property, even if the sale occurs during the marriage. Additionally, if the property generates rental income, that income is the spouse’s separate property, regardless of whether it is earned during the marriage. The only time a spouse may be entitled to a portion of the other spouse’s separate property is if community property funds were used to pay for that property.
Community contributions to a spouse’s separate property typically occur when the mortgage or loan payments on the property are made with income earned during the marriage. Since income earned during the marriage is considered community property (even if the spouse held the job prior to marriage), any mortgage payments made with that income are treated as community contributions toward the separate property. Furthermore, if a spouse refinances their separate property during the marriage and uses community property income to pay the new loan or mortgage, the entire property may be classified as community property.
If there is no refinance, the community is entitled to a proportional share of the property, based on the extent to which community property funds were used to pay down the mortgage. However, if there is a refinance, the community may be entitled to claim the entire property as community property. Each spouse is entitled to one-half of all community property.
The method used to calculate a spouse’s share of the other spouse’s separate property is called the Moore-Marsden Calculation, named after two court cases: Moore, which established the calculation, and Marsden, which refined it. To apply the Moore-Marsden Calculation, the following four pieces of information are needed:
Step One: Determine the amount by which community property funds were used to pay down the principal.
Step Two: Calculate the community property percentage share by dividing the amount from Step One by the purchase price of the property.
Step Three: Calculate the appreciation in the value of the home during the marriage by subtracting the purchase price from the current value of the home.
Step Four: Calculate the community property’s share of the appreciation by multiplying the percentage from Step Two by the amount from Step Three.
Step Five: Calculate the total community property interest by adding the amount from Step Four to the amount from Step One.
Step Six: Divide the total community property interest (from Step Five) by two to determine each spouse’s share of the community property interest.
This amount does not have to come directly from the house. For example, if the community property interest is calculated to be $50,000, the spouse who owes that amount can pay it using any of their separate property or their share of community property. Additionally, this amount can be used to offset any other payments one spouse may owe the other. This process is called an “offset.”
