Steps to Determine Family Code 2640 Reimbursements – Irvine Divorce Lawyers
Family Code 2640 reimbursements apply when one party uses separate property assets to acquire a community property home. The separate property is reimbursed as a “dollar-for-dollar” payment to the contributing spouse. This page describes the requirements that must exist prior to any Family Code 2640 reimbursement being permitted by the Orange County (or other) Family Court in California using the case example and analysis of the Bonvino case.
The Bonvino case provides a different holding than one might expect. In this case, the separate property down payment was not simply reimbursed dollar-for-dollar, but the party contributing the separate property down payment was entitled to a pro-rata share of the property’s appreciation.
Family Code 2640 Explained
Family Code 2640 reimbursements apply to residential properties that are acquired during marriage using separate property contributions that include any of the following:
- Down payments to purchase the property initially;
- Payments for improvements (must be at or near the time of acquisition); and
- Payments from separate property that reduce the principal of a loan used to finance the purchase.
The party that makes those separate property contributions is entitled to a reimbursement to the extent the party can trace the contributions to a separate property source. The amount of reimbursement is without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division.
What Kind of Proof is Needed for Family Code 2640 Claims
In order for a party to be entitled to reimbursement under Fam. Code 2640, that party must adequately trace his or her separate property contribution to the acquisition, loan pay down, or improvement of a community property real property asset. Tracing can be a painstaking process and requires actual documentation showing where the money came from (i.e. that it came from a separate source) and then went directly to the acquisition.
Providing just “some documents” purporting to show a tracing is not adequate. The law requires a very specific showing of documents that clearly evidence that money is separate in nature (i.e. brought into the marriage or acquired as a gift, inheritance, etc.). Simply arguing that money is separate in character will not work. Case law does permit oral testimony to “fill in” gaps where documents are missing. However, the likelihood that testimony to fill in those gaps will be sufficient is not good. Most judges will require a complete tracing.
Determining Whether Family Code 2640 May Apply
When a party makes separate property contributions to the acquisition of property during marriage, that party may be entitled to reimbursement for those contributions under Family Code 2640. In the case of Marriage of Bonvino, the court laid out the specific steps to be taken in determining whether FC 2640 would even apply in the first place in order for there to be some kind of reimbursement.
Step 1: Determine the Characteristic of the Property
For any property that is acquired during marriage, the property is presumed to be community property. However, this presumption can be overcome as long as a party is able to trace the property to a separate property source.
In the Marriage of Bonvino case, the subject property is in Westlake Village, California and was acquired during marriage. The down payment towards purchase was made with the husband’s separate property funds, and the remainder of the purchase price was paid from a community loan based on the husband’s salary which is the primary source of income on the loan application. Usually, the court will look at the “intent of the lender” when a mortgage is taken out during marriage to determine if there is a separate property component. Here, the husband did not allege that the lender relied solely on the husband’s separate property when making the loan. Husband’s income was the parties’ primary income source during marriage. The husband was able to trace the down payment for the Westlake Village property to his separate property fund contributions towards the down payment. As a result, the presumption that the down payment is community property was overcome.
Step 2: Determine whether a transmutation occurred as to the separate property contributions and whether form of title presumption applies
The second step involves determining whether a transmutation occurred and whether the “form of title” presumption applies.
Step 2A: Whether a Transmutation Occurred
The Legislature established the transmutation statutes which are now known as Family Code sections 850 through 853. Fam. Code Section 852 provides that a transmutation is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected. The transmutation of the character of property can be valid from separate to community property or community to separate property as long as the transmutation statutory requirements are met. This is particularly pertinent if there is a form of title which would change the character of the property under Evidence Code 662. The form of title presumption under Evidence Code 662 only applies if the transmutation requirements of Family Code section 852 have not been met.
In the Marriage of Bonvino case, the Westlake Village house was acquired with both separate and community property funds but the title was taken in the husband’s name alone.
In Bonvino, the court required a transmutation analysis, which found the following facts:
- No writing containing an express declaration that husband was changing the character of his separate property down payment.
- Therefore, the husband’s separate down payment still retained its character as the transmutation requirements were not met (i.e. he did not transmute his separate property interest in the home to community property).
Once you determine that a transmutation did not occur, move onto the next step.
Step 2B: Whether Evidence Code 662 Title Presumption applies
There is a title presumption under California law, which holds that title is presumed to be as stated unless by clear and convincing evidence it is proven that the title is not actually as stated. Generally, the California Evidence Code section 662 often conflicts with the transmutation statutes set forth in the Family Code.
In Bonvino, the Court found:
- The loan proceeds are community property.
- The transmutation requirements had to be met for the community property loan proceeds to become the husband’s separate property as stated in the title for the Evidence Code 662 title presumption.
- No documents were signed by the wife conveying title to the husband other than a quitclaim deed, which was set aside.
- Therefore, the presumption based upon the form of title conflicts with the transmutation requirements in the case and the title presumption does not apply. As a result, the Westlake Village house actually had two “characteristics” of property, including both a separate property character and community property character.
Once you determine that no title presumption issues exist, move on to the next step.
Step 3: Determine whether party is entitled to separate property reimbursements under FC Section 2640
FC Section 2640 provides a limited reimbursement of separate property contributions as part of the division of the community estate under the Family Code. As long as the party who made separate property contributions towards the acquisition of community property can trace the contributions to a separate property source, then the contributions are reimbursed unless the party waived the reimbursement right in writing or signed a writing that has the effect of a waiver. However, the amount of reimbursement does not include interest or appreciation, and cannot exceed the net value of the property at the time of division.
Contributions are limited to down payments, improvements, and the reduction of the principal of a loan that financed the purchase or improvement of the property. Contributions do not include the interest paid on the loan or payments for maintenance, insurance, or taxes. Again, the payments must be adequately traced to separate property sources.
Under FC section 2640, a party making a separate property contribution to the acquisition of the property did not make a gift unless there is a writing showing otherwise but is entitled to reimbursement for the separate property contribution at dissolution of marriage. The community is entitled to appreciation. If property depreciated, then the reimbursement may not exceed the value of the property. If both parties are entitled to reimbursement and the property has insufficient value to reimburse both, then reimbursement should be on a proportionate basis.
However, the transmutation provisions of Family Code 852 must be satisfied first before 2640 reimbursement can apply.
In Marriage of Bonvino, the Court found that none of the documents in the case satisfied a valid transmutation of the husband’s separate interest in the Westlake Village property to community in character. Also, the husband’s separate property investment (i.e. down payment) retained its separate character, and both separate and community interests were established in the property in accordance with the formula established in Aufmuth and Moore. Further, the pay off of loan did not meet requirements of FC 852 to transmute separate property (proceeds) to community property with right of reimbursement. And finally, the husband’s payment of the loan with his separate property proceeds created an additional proportionate separate property investment in the property.
In sum, if property is acquired during marriage with both separate and community funds and titled only in the name of the spouse contributing the separate property down payment, the transmutation requirements of Fam. Code 852 must be satisfied before the reimbursements provisions of Fam. Code 2640 apply. Absent transmutation, each parties’ estates continues to own its pro-rata share.
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Often, success in a particular depends on the arguments and analysis presented. While some facts and arguments appear relatively straightforward, it may come down to how information is presented and litigated. Please call our office today at (949) 955-9155 for a free consultation regarding this issue as well as all other divorce issues.