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:
- The parties agreed payment would not be reimbursed;
- Payment was truly intended as a gift, even though made after separation; and/or
- 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.