What Happens When the Downpayment on the Family Residence is Made From Separate Property?

In our previous blogs we've discussed what can happen to the family residence during a divorce and how it can properly be divided, but what happens if the down payment on the home was made with separate property?

Let's say that prior to the the marriage the wife had a personal savings account with a balance of $50,000. This account continued to remain the wife's separate property until the husband and wife decided to purchase their first home together, using the wife's $50,000 savings as the downpayment. The mortgage for the remaining amount owed on the property is in both husband and wife's names, as is the property deed. Furthermore, throughout the marriage the mortgage payments are made from husband and wife's joint checking account, where both husband and wife deposit their paychecks each month. All of these facts would lead a judge in California to determine that the family residence is community property and should therefore be divided equally in a divorce. But what about that $50,000 separate property downpayment?

blue house

Assuming the wife can prove the original $50,000 was in fact separate property (i.e. all deposits into wife's account were made prior to the marriage, no community property funds were commingled into the account, etc.) then the wife would probably be entitled to a credit of $50,000 when the assets are distributed between husband and wife.

In an earlier example we said that the couple's home was valued at $600k with a $450k mortgage still outstanding. If the home was immediately sold, there should be approximately $150k in equity, or $75k available to each party, if awarded equally. If it's decided that the wife has a $50k separate property credit (either by order of a judge or by mutual agreement by both parties) then the distribution of the proceeds from the sale of the residence will be handled differently. From the $150k, the wife would first receive a $50k reimbursement for the downpayment, leaving a remaining balance of $100k, which would then be divided equally between husband and wife, or $50k each.

This example is an oversimplification of what can often become a very complicated process. If you think you are entitled to any separate property claims, we suggest you contact an expert attorney at Richard Ross Associates right away.

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