This is an example of a situation that is popular in the majority of divorce situations. These types of calculations are called Moore Marsden calculations. This may not seem like a concept that one has heard of before. For example, Moore Marsden could be a person’s unusual name or a couple of random words put together. But to Inland Empire family lawyers, the words are almost as familiar as community and separate property.
Moore Marsden is the name of two separate cases decided by our Supreme Court (Marriage of Moore in 1980) and subsequently by our appellate court (Marriage of Marsden in 1982) that deal with the issue of whether the community should receive any money as a result of mortgage payments made during the marriage on a home that was owned by one spouse prior to the marriage or is otherwise that spouse’s separate property.
To understand the Moore Marsden formula and analysis better, it's helpful to take a look at the Marriage of Marsden case.
The husband in that case purchased a home prior to marriage for $38,300. He made a down payment on the home in the amount of $8300 and obtained a loan for the remaining balance of $30,000. By the time the husband got married, he had reduced the principal amount due on the mortgage by $7000. Once the husband and wife became married, additional mortgage payments were made on the house and the principal amount of the loan was reduced by an additional $9200. After the husband and wife separated the husband continued to make the mortgage payments and reduced the principal by an additional $655.
The question that was asked and what ultimately became the Moore Marsden analysis and formula was whether the community was entitled to any portion of the house as a result of the mortgage payments made during the marriage.
Before we address the principal pay-down issue, it is important that you understand the mortgage payments in that case were made with community property funds. Had the mortgage payments and the principal reduction been made with the husband’s separate property funds, the community would likely not have obtained any interest in the home through the Moore Marsden formula. Furthermore, if the principal had not been reduced and the mortgage payments made during the marriage were interest-only, regardless of whether the community or the husband’s separate property paid for it, there likely would not have been any interest to the community for the mortgage payments unless there was some other theory of reimbursement that could be made, such as, as one very popular example, improvements to the home.
To conduct the Moore Marsden analysis, the appellate court needed two additional bits of information, which it had. First, the court needed to know what the market value of the home was at the time of marriage and, second, it needed to know what the value of the home was at the time the analysis was being done (which in a family law case that is contested is the time of trial). In the Marsden case, the fair market value of the house at the time of the marriage was $65,000. At the time of trial, the fair market value of the house was $182,500.
Let’s practice a few Moore Marsden calculations:
Remember that $38,300 was the total purchase price of the home. Since $9200 of principal was paid down through community funds, that means a little over 24% was contributed by the community (in a principal pay down) toward the initial and total price of the home. That is simple division. That also means a little under 76% was the remaining separate property interest. That includes the down payment plus the $30,000 loan proceeds, minus $9200 that was paid by the community.
Now comes the fun part. Using the numbers we have, we can calculate that prior to the marriage, there was a separate property appreciation of $26,700. During the marriage there was a $117,500.00 appreciation. Do you remember what we wrote was the number of the total principal reduction during the marriage? $9200. How about the percentage that principal reduction bore to the purchase price of $38,300? A little over 24%. Thus, if you take 24% of $117,500 (the appreciation during the marriage) and add to that the principal reduction of $9200, you get the total amount to which the community is entitled in the approximate amount of $37,423. For the purposes of this illustration, we have excluded cents and fractional percentages.
You may ask, “is that what the wife gets?” The answer is no. That is what the community receives and the community includes the husband and wife. Therefore, the wife receives $18,711 (1/2 of the community portion) and the husband receives the remaining equity in the home as well as the balance due on the loan.
Over the years, some people have called this result unfair. Regardless of opinions on it, it is the law and the logic is fairly clear. The increase in the equity of the home during the marriage is simply a condition of the market. Homes go up and down in value during the marriage and that is not controlled by anything the community does or does not do. Therefore, the family courts believe it would be unfair to someone who owns property prior to the marriage to have to share 50% of the equity increase during the marriage, just because the home increased in value and without taking into consideration what, if anything, the community contributed to that increase.
Furthermore, only a principal reduction of a mortgage creates equity in the property by reducing its debt. Payments on an interest-only loan do no such thing and therefore do not provide any value toward the equity.
The Moore Marsden decisions, analysis and formula can be confusing. The analysis becomes even more complex if there has been a refinancing that has taken place or improvements have been made to the home with community funds during the marriage.
Our attorneys can help you determine whether or not there is a Moore Marsden interest in the residence and how much so you don’t overpay if you owned the property prior to the marriage or get underpaid if principal was paid during the marriage. In addition, our family lawyers can look at other facts you provide us related to the residence to see if there are potentially other separate or community property claims. Contact us today for an affordable strategy session.
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