BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
SB 1407 S
Senator Kuehl B
As Introduced
Hearing Date: April 27, 2004 1
Family Code 4
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SUBJECT
Community Property: Separate Property Contributions
DESCRIPTION
Existing law allows a spouse to be reimbursed for separate
property contributions to community property, and allows
the community to be reimbursed for contributions to the
separate property of one spouse. However, there is no
provision for allowing a spouse to be reimbursed for
separate property contributions to the separate property of
the other spouse.
This bill would allow reimbursement for separate property
contributions of one spouse to the other spouse's separate
property assets or debts, unless there is a writing making
the contribution a gift. The proposed right to
reimbursement would be without interest or adjustment for
change in monetary values.
BACKGROUND
Existing law permits reimbursement to a spouse or the
community in certain circumstances. In 2001, a California
Court of Appeal declined to extend the right of
reimbursement to other circumstances absent express
statutory authorization. (See Comment 1.)
The Conference of Delegates of California Bar Associations
passed a resolution recommending that legislation be
(more)
SB 1407 (Kuehl)
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sponsored to amend Family Code Section 2640. The State Bar
of California, Family Law Section unanimously approved the
proposed statutory language and is co-sponsoring the bill.
CHANGES TO EXISTING LAW
Existing law provides that the community estate acquires a
pro tanto quasi-ownership stake in one spouse's separate
property to the extent community funds contributed to the
equity in the spouse's separate property. The community
estate acquires its stake for payments made to reduce an
encumbrance on separate property and capital improvements
to separate property, but not payments made for taxes,
interest or maintenance. [The so-called "Moore/Marsden
rule," from Marriage of Moore (1980) 28 Cal.3d 366, 373-374
and Marriage of Marsden (1982) 130 Cal.App.3d 426, 438-440;
Marriage of Allen (2002) 96 Cal.App.4th 497, 502; Marriage
of Wolfe (2001) 91 Cal.App.4th 962, 928-929 (reimbursement
for amount of improvement, not pro tanto interest in
enhanced value resulting therefrom).]
Existing law authorizes reimbursement for separate property
contributions to the acquisition of community property
(equity in the community property), unless a writing
expressing the intent to make a gift or waiving the right
to reimbursement has been executed. The spouse who
contributed separate property is entitled to reimbursement
for payments made to reduce an encumbrance on community
property and capital improvements to community property,
but not payments made for taxes, interest, insurance or
maintenance. The amount reimbursed is without interest or
adjustment for change in monetary values. The amount
reimbursed shall not exceed the net value of the property
at the time of the division. [Fam. Code Sec. 2640.]
This bill would authorize reimbursement for separate
property contributions to the separate property estate,
including assets or debts, of the other spouse, unless a
writing expressing the intent to make a gift or waiving the
right to reimbursement has been executed. This bill, like
existing law, would state that the amount reimbursed is
SB 1407 (Kuehl)
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without interest or adjustment for change in monetary
values.
This bill would, unlike existing law, apply to any
contributions from the separate property estate of one
spouse to the separate property estate of the other spouse,
not only those contributing to the equity of an asset. The
extent of reimbursement would not be limited by the net
value of the property at the time of the division, and
reimbursement would be required even when there is no asset
involved, such as for payments made on a pre-existing tax
liability or consumer debts.
COMMENT
1.Stated need for the bill
Co-sponsor Sacramento County Bar Association states:
Since the adoption into law of Family Code section
2640, the Legislature and courts have determined that
the pre-existing theory, that any contribution of
separate property by one spouse to the community or by
the community to one spouse's separate property was a
"gift" and therefore not subject to reimbursement, was
not viable or accurate in today's society. If this is
true, then contributions by one spouse, after
marriage, to the separate property estate of the other
spouse should not be viewed as a "gift" and be
reimbursed if no written waiver, per Section 2640,
exists.
In the case Marriage of Cross (2001) 94 Cal.App.4th 1143,
husband expended approximately $40,000 of his separate
property money for capital improvements to the residence,
which was wife's separate property. Upon dissolution,
husband sought reimbursement for the $40,000 and relied
on Family Code Section 2640. The court denied his
request and the appellate court affirmed, stating:
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Both the clear language of the statute and the cases
interpreting it address situations where one spouse
has used his or her separate property to purchase or
improve community property. Nothing in section 2640
gives one spouse a right of reimbursement for separate
property contributions made to the other spouse's
separate property. If the Legislature had intended to
give a spouse a right to reimbursement for separate
property contributions made to the other spouse's
separate property, the Legislature could have included
language to achieve this intent. It did not. [94
Cal.App.4th at 1147 (emphasis in original).]
2.Concern regarding inconsistent policies created by bill
and potentially unjust results
a. Reimbursment right created by bill inconsistent
with limited circumstances under which reimbursement
is currently permitted
The Family Law Section of the Los Angeles County Bar
Association comments:
As presently drafted, SB 1407 grants too broad a
right of reimbursement and would appear, for
example, to permit reimbursement for separate
property contributions for such expenses as
interest, maintenance, insurance and taxes, items
for which reimbursement is not currently allowed
under Family Code Section 2640.
If SB 1407 as presently drafted indeed grants such a
broad reimbursement right, it goes too far beyond
the definition of "contributions to the acquisition
of property" currently set forth in Family Code
Section 2640(a) and would permit undeserved windfall
reimbursements out of harmony with Family Code
Section 2640 and current case law.
The Family Law Section of the Los Angeles County Bar
Association states that if the bill were amended to
limit the type of reimbursement permitted to be
consistent with Family Code Section 2640 and current
case law, it would "withdraw [its] present opposition"
and view SB 1407
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. . . as a needed and appropriate logical extension
of California's current "right of reimbursement" law
as represented by Family Code Section 2640 and the
relatively recent cases of In re Marriage of Wolfe
and In re Marriage of Allen . . . [holding the]
community is entitled to reimbursements for
community property funds used to make improvements
on one spouse's separate property . . . .
[Citations omitted.]
As a practical matter, SB 1407 if amended as here
recommended would close a hole in the area of
"reimbursements" that has somehow not been
previously clearly addressed by either statute or
case law, and it would be a worthy statutory fix
enabling some divorcing party to save the expense of
having to establish by litigation the very same
"reimbursement" result statutorily granted by SB
1407 amended as here recommended.
SHOULD NOT THE BILL BE NARROWED, AS RECOMMENDED ABOVE?
b. Reimbursment right created by bill inconsistent
with statutory spousal support duty
When the Conference of Delegates of California Bar
Associations considered Resolution (8-05-2003),
identical (after amended) to SB 1407, the Bar
Association of Northern San Diego County stated as a
counterargument to the Resolution:
This resolution attempts to create a category of
rights and liabilities distinct from those common to
marriage and existing domestic partnership by
hand-picking certain privileges from both bodies of
law and deleting basic liabilities common to both,
such as a support obligation. Eliminating
obligations would gut the domestic partnership laws
and would leave the domestic partner with the least
bargaining power unprotected.
This comment appears to be related to the statutory
spousal support duty under Family Code Sections 4300
and 4301: "Subject to this division [(Fam. Code Sec.
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3500 et seq.)], a person shall support the other
person's spouse" [Fam. Code Sec. 4300]; and " . . . a
person shall support the person's spouse while they
are living together out of the separate property of
the person when there is no community property or
quasi-community property" [Fam. Code Sec. 4301].
SB 1407 appears to create a right to reimbursement for
contributions from one spouse's separate property to
the other spouse's separate asset or debt in the case
when there is no community property or quasi-community
property that could pay for the other spouse's
separate asset or debt, despite the fact that Family
Code Section 4301 requires the expense from the one
spouse's separate property as an obligation and does
not create a right to reimbursement.
(In contrast to Family Code Section 4301, Family Code
Section 914(b) (liability of a spouse's separate
property for "necessaries of life" debts of the other
spouse incurred during marriage) does not require the
exhaustion of the community estate before the
nondebtor spouse's separate property may be reached by
a third party creditor, and expressly permits
reimbursement for separate property funds used only to
the extent community or separate property of the
debtor spouse was available but not used. Family Code
Section 920(c) provides that a right of reimbursement
provided by Part 3 (commencing with Section 900) is
limited to a three-year enforceability period, or less
if a dissolution occurs before the end of the
three-year period. SB 1407 has no limitations
period.)
c. Hardships or potential inequities could result from
application of bill as written
The California Judges Association (CJA) orally
informed Committee staff of its opposition to the
bill, but as of Friday, April 23, 2004, no letter had
been received.
Through a member judicial officer, CJA expressed
concern that expanding the right to reimbursement
beyond the circumstances presently permitted under the
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case law and Family Code Section 2640 could be
inequitable and create hardship. For example, in a
divorce involving no assets, only liabilities (which
is common), if early in the marriage husband used
separate property assets to pay pre-marriage consumer
debt of wife totaling $10,000, and the couple divorces
when both spouses are retired and living on limited
income, wife would owe to husband $10,000 in addition
to owing 50 percent of the community's debts. Wife
could be burdened with the debt with no source of
income to repay husband.
Family Code Section 2640 limits the separate property
reimbursement to amounts contributed to the
acquisition of property, and caps reimbursement at the
net value of the property at the time of division,
which ensures that there is a source for repayment of
the contribution and protects the community from
liability exceeding the net value of asset.
California Judges Association proposes that if the
intent of the bill is to correct the problem stated in
Marriage of Cross (which concerned husband's separate
property contribution for capital improvements to
wife's separate property house), Family Code Section
2640 should be extended:
i. only to allow reimbursement for payments made
to reduce an encumbrance on the other spouse's
separate property and capital improvements to the
other spouse's separate property, but not payments
made for taxes, interest, insurance or maintenance;
<1> and
ii. in addition to the amount reimbursed being
without interest or adjustment for change in
monetary values as stated in Family Code Section
2640(b) and SB 1407, reimbursement should only be
available:
A. if the asset to which contributions were
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<1> The amendments suggested by the Family Law
Section of the Los Angeles County Bar Association,
above, would address CJA's concern on this issue.
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made is still part of the other spouse's separate
property estate (in which case the amount
reimbursed should not exceed the net value of the
property at the time of the division), or
B. if the asset to which contributions
were made is no longer part of the other
spouse's separate property estate but the
proceeds of the asset are now traceable to some
other asset of the other spouse's separate
property estate (in which case the amount
reimbursed should not exceed the net value of
that asset at the time of the division).
1.Supporters assert difference in policies is appropriate
Supporters of SB 1407 acknowledge that the rule created
by SB 1407 for dealing with a separate property
contribution to the separate property of the other spouse
is different than existing rules governing a separate
property contribution to pay a community debt.
Supporters contend that limitations on reimbursement of
separate property of one spouse used to benefit the
community is due to the fact that the debts and
responsibilities of the community are also obligations of
that spouse and that, therefore, the spouse using
separate property for the benefit of the community is
receiving a direct partial benefit. Supporters assert
that allowing 100 percent reimbursement of the separate
property for payment of a community debt would to some
extent result in unjust enrichment.
Supporters offer that partial liability is not the case
when the separate property of one spouse is used for the
benefit of the separate property of the other spouse, and
states that 100 percent reimbursement in this
circumstance is appropriate because the spouse giving the
property receives no benefit, and the spouse receiving
the property will retain all the benefit after the
marriage ends. Supporters offer the following example:
if husband owes $10,000 on a car that is his separate
property, and he wants to retain the car as his separate
property during the marriage, he will have to pay the
debt on the car with funds from some source other than
his wages and salary, such as funds from a gift or an
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inheritance. If wife uses funds from her separate
property to pay the $10,000 debt on the car, which will
still remain the separate property of husband because no
community property assets were used, at the time of
dissolution husband will not only have the car, but the
entire $10,000 left in some separate account.
Reimbursing 100 percent of the separate property of wife
leaves husband in the same position as if he had used his
own separate property to pay the $10,000 in the first
place, which he would have had to have done in order to
maintain the character of the car as his separate
property. In fact, even if husband is required to
reimburse wife the entire $10,000, he is still in a
better position because he will keep any interest earned
on the $10,000 up to the time of the dissolution.
Supporters contend that for this reason, allowing for 100
percent reimbursement of separate property used to
benefit the separate property of the other is entirely
fair and reasonable.
Support: None Known
Opposition:Los Angeles County Bar Association, Family Law
Section (support if amended); California Judges
Association
HISTORY
Source: The State Bar of California, Family Law Section;
Conference of Delegates of California Bar
Associations; Sacramento County Bar Association
Related Pending Legislation: None Known
Prior Legislation: None Known
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