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Using Community Funds to Improve Separate Property is a Poor Option

On Behalf of | Oct 19, 2019 | Divorce

Using community funds to improve separate property is a poor option during your marriage.  It can prove especially costly in a subsequent divorce.

The property each individual owns prior to a marriage is considered “separate” property under California law.  In most cases, the money each of them earns at work and anything they purchase during the course of the marriage is considered community property.   Community property must be divided equally between the parties during a divorce.  What happens when a spouse uses community funds to improve separate property such as a business or rental property?

These cases often involve a substantial amount of money.  An agreement may be reached to reimburse the community for community for the amount invested into separate property.  If not, the matter must be brought before the court who will review all evidence and hear testimony from expert witnesses.  Ultimately the Judge will have to decide which evidence is most credible and work through competing testimony to come to a decision.

A recent case reflects the complexity of many Carlsbad and North County divorce cases and how important it is to have on of the Certified Family Law Specialists from Burke & Domercq with deep experience and expertise on your side.  One year into a 37 year marriage the couple in this case purchases a home using money from the wife’s “separate” trust fund for the down payment.  They use additional funds from the trust account to improve the property shortly thereafter.

Next the couple purchased a parcel of land next door to their house, again using the wife’s separate trust funds.  They built a lavish home on the parcel including a pool and tennis courts and added extensive landscaping.  Both properties, originally titled in the wife’s name alone, were transferred to the husband and wife jointly in 2005.

The trial court heard testimony from multiple expert witnesses regarding the commingling of marital funds, the use of the husband’s construction company, as well as the amounts contributed to the endeavor from the wife’s separate trust account.  In the end the trial court found the $5.4 million property was funded 47% by the wife’s separate funds and 53% by community property.  The Judge in this case ordered the community interest to be divided in half.  The husband filed an appeal with the Sixth District Court of Appeal.

In the decision by the Sixth District Appellate Court regarding the trial court outcome the decision of the lower court was upheld.  The Sixth District Court noted:

“The court’s finding of the value of the property was based on its review of the evidence presented at trial, and in particular, the testimony of multiple experts for both parties.”

The decision of how to weigh competing testimony or valuations in how the couple used community funds to improve separate property was left up to the trial judge.  The trial judge would have to determine which evidence was most credible and base a decision upon that evidence.  “As an appellate court, we do not weigh the evidence presented in the trial court, nor do we make a determination of a witness’ credibility,” the Court said.

Resolving matters where a couple has used community funds to improve separate property are quite legally complex.  The presentation of credible evidence, expert witnesses and valuation studies are heavily influenced by the quality of your own divorce attorney.   The Carlsbad based Certified Family Law Specialists at Burke & Domercq have decades of experience in many high asset and complex “separate property” cases.  We invite you to contact us or call 760-389-3927 to schedule an appointment with one of our experienced attorneys.