Let's Cash in the Assets

Let's Cash in the Assets

Elayne C. and Leon J. Epstein were married on August 8, 1954, and separated on April 15, 1972 when Leon moved out of the family home. Elayne was 46 years old Leon was 55. The marriage produced two children: a daughter and a son. Leon is a professor of psychiatry at the University of California, School of Medicine, and maintains his own private practice. Although Elayne received a B.A. degree in social work prior to the marriage, she never worked in the field, nor did she work or receive any additional training after her marriage to Leon. After the couple separated, she and the children continued to live in the family home. Leon continued to make the payments on all the pre-existing community debts. Since he did so out of the earnings he made after their separation, the funds were considered his separate property.

At the time of trial, Leon wanted to be reimbursed for making payments on community obligations, and the trial court denied his motion, based on then-existing law that stated separate property used to pay community property obligations was considered a gift to the community and not reimbursable. This rule was based on the assumption that people in a loving relationship would want to do what was best for the relationship (community). Leon appealed.

The California Supreme Court reversed:

"…When after separation, one of the spouses makes payments on preexisting community debts out of earnings or other separate funds, if the no-reimbursement rule is applied, the result is that community obligations which would otherwise be charged against community property and borne by the parties equally are charged exclusively to the paying spouse. Thus, application of the no-reimbursement rule will discourage payment of community debts after separation, exacerbate the financial and emotional disruption which all too frequently accompanies the breakup of a marriage and, perhaps, result in impairing the credit reputations of both spouses…"

The Supreme Court also provided guidelines to use when NOT to reimburse a party for applying his/her separate property to a pre-existing community debt:

1. The parties agreed payment would not be reimbursed;
2. Payment was truly intended as a gift, even though made after separation; and/or
3. Payment was made on account of a debt for the acquisition or preservation of an asset the payer was using, and the amount paid was not substantially in excess of the value of the use.

This case law is known as the "Epstein Guidelines." It is often used in cases today, for example: A party making car payments on a community property car, but having full access to the use of that vehicle, would not receive reimbursement for the car payments, but if a party was living in the family home and making the house payments, he/she may be entitled to reimbursement if the mortgage was higher than he/she could live elsewhere and was living there to maintain the house.

This area of law can be very complicated and should be handled by a lawyer specializing in family law.