Written By: Lucy Vartanian, Esq. and Casey J. Marticorena, Esq.
The scenario is all too common. Mike and Molly purchase a Malibu mansion. Mike uses $200,000.00 of his inheritance money for the down payment. Under California law, inheritance money is separate property. Fast forward ten years, Mike and Molly are headed for a divorce and Mike wants his $200,000.00 back. Fortunately, for Mike, California Family Code section 2640 recognizes his right to be reimbursed! Specifically, California law allows for reimbursement of separate property contributions toward the acquisition of real property.
Although the Malibu mansion is a community asset purchased during the marriage, Mike has the right to collect a reimbursement for the $200,000.00. In addition, if Mike had paid for improvements on the Malibu mansion, he would be entitled to reimbursement so long as the improvements increased the fair market value of the house. This is usually accomplished by juxtaposing the value of the Malibu house at the time of the improvement and the date of the trial.
However, there are two caveats. First, Mike must satisfy his burden of “tracing” the $200,000.00 to a separate property source, which can be an inheritance, a gift or pre-marriage earnings. If Mike can provide sufficient evidence, such as bank documents, cashed checks or witnesses, to prove that the $200,000.00 down payment was made from his inheritance, then he is in good shape. Second, if Mike waived his right to reimbursement in a valid, signed writing, a court would likely find Mike’s demand for the $200,000.00 to be unfounded.
Although the California Legislature has codified various provisions for reimbursements of separate property, the law is also restrictive on the types of contributions that can be reimbursed. For instance, Mike may be out of luck if he sought reimbursement for payments towards the loan interest, maintenance or insurance of the Malibu mansion.
In sum, the State of California has carved out a policy of providing recourse for individuals who contribute separate monies towards the acquisition of a community asset.
At Schweitzer Law Partners, we have handled several “2640 cases” and have worked with tracing experts in both pursuing and defending these types of claims.