California Divorce Blog–Community Property Epstein Credits and Watts Charges

Division of Community Property can be a complicated subject when dealing with issues regarding real property (real estate). For example, if parties separate and one party remains in the family house and the other party moves out but continues making the mortgage payment, how does the court handle this issue?

The Court will charge the spouse living in the family residence a form of rent which is reimbursement for value of post separation use of community property called “Watts Charges”.  Just as a spouse may have a reimbursement claim against the community for postseparation separate property payments on a community debt, the community may have a reimbursement claim for the value of one spouse’s exclusive use of community property between the date of separation and the date on which the community no longer has an interest in the property—so-called “Watts charges.” (Marriage of Watts (1985) 171 CA3d 366, 374, 217 CR 301, 306)—trial court has authority to order reimbursement to community for spouse’s postseparation exclusive use of community asset; (Marriage of Bell (1996) 49 CA4th 300, 311, 56 CR2d 623, 630—judgment reversed because (among other things) trial court neither ordered reimbursement to community for spouse’s postseparation exclusive use of CP residence nor explained why reimbursement not ordered; and see Marriage of Falcone & Fuke (2012) 203 CA4th 964, 978-979, 138 CR3d 44,59-60—where asset not owned outright by community but is being financed, spouse in possession may satisfy duty to compensate community by making monthly finance payments from his or her separate property (so-called “Epstein credits”]

A typical scenario occurs after separation where one spouse is making payments on a community property home in which the other spouse is given the right of exclusive possession pending sale and a division of the proceeds. To effect a net overall equal division, the trial court may properly award the paying spouse Epstein credits for his or her SP payments on the house and charge the occupant spouse with the full Watts postseparation use value. In effect, the “Epstein credits” are paid from the community and the “Watts charges” are paid to the community, which should yield an equal sharing ofEpstein credits by both spouses and an equal bearing of Watts charges by both spouses. (Marriage of Jeffries (1991) 228 CA3d 548, 553, 278 CR 830, 833).

If your divorce case involves the division of real property, you should contact Attorney Keith F. Simpson today. California real estate is typically the most valuable asset held by a married couple. It is important to maximize the return on your real property investment by seeking all reimbursements and credits owed to you.  Attorney Keith F. Simpson is located in Manhattan Beach, California. You may contact the Law Offices of Keith F. Simpson at http://www.simpsonlaw.net or call at (310) 297-9090.

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