Is That Pre-marriage House Really Mine
Often, a residence will be owned before marriage and maintained by the parties during the marriage. The law has developed on this issue called Moore/Marsden. These were two cases which set the rule for how to deal with this issue.
The calculation is straightforward. The community is entitled to a return for the principal payments made during the marriage plus a percentage of any increase in equity from the date of marriage to the date of trial based on the mortgage payments made. By way of example: Husband uses his earnings during marriage to pay the mortgage which includes a $1,000 principal payment for three years during marriage ($36,000). The house was purchased prior to marriage by husband for $360,000. (10% of the original purchase price was paid down during the marriage.) During the marriage, the house appreciates $100,000. At the time of death or dissolution, the community is entitled to $46,000. $36,000 plus 10% of the increase in value, or $10,000. This is split by husband and wife and husband gets the house as his separate property.
What if there is very little equity in my separate property house at divorce
As is all too common these days, the house has decreased in value such that there is $20,000 of equity in the house that was purchased with a $20,000 down payment from husband prior to marriage. Despite how long the parties have made the mortgage payments during marriage, the entire equity in the residence goes back to the husband.
Refinancing a house purchased prior to marriage
If you refinance your residence during marriage, then you have paid down the original purchase price with the new loan. Therefore if the new loan pays off the original mortgage of $240,000, then the community has a 67% interest in the increase of equity. (240,000/360,000 equals 67%). If that equity increase is $100,000, then the community has a 67,000 interest in this increase. The only exception to this is if the bank looks only to the new spouse and only to his separate property residence when making the new loan. This is a hard standard to prove and often unsuccessful in the courts.
What if I improve the house during the marriage with my salary or an equity line of credit
The rule is that if you make capital improvements to the separate property house of your spouse that increases the value of the property, then you receive a credit for the monies paid toward that improvement, up to the increase in value caused by this improvement. If the family contributes $100,000 for new kitchens and bathrooms, and this increase the value of the residence by $40,000, then the community receives $40,000. However, the community may still liable for the $100,000 equity line of credit taken out to do this.
What if I sign a quitclaim in order to refinance a residence
Your friendly mortgage broker tells you that since your wife has bad credit, you can get a better rate if she is not on the loan and quitclaims the house to you. This will save you $500 a month and you and your wife decide this is a good idea. You never discuss the issue, but she assumes that you both still own the house and she will go back on the house. You forget to put her back on the house and after a divorce whose house is it? The case law is still in flux on this issue, but it is still the law that if you sign a quitclaim and are not put back on the residence, in the absence of a specific promise to put you back on, the house belongs to your spouse. Maybe that $500 wasn’t worth it after all.