Generally, divorcing spouses are supposed to split their home and other community property under California law. When one spouse lives in the home alone after the couple separates and before they’re officially divorced, however, he or she may need to compensate the other spouse for the exclusive use of the property. These so-called “Watts” credits were the subject of a recent case in California’s Second District Court of Appeals.
Husband and Wife separated in 2013, following some 30 years of marriage. Wife lived alone in the family home for nearly two years following the separation and through the course of a heated trial. A trial judge eventually awarded the home to Husband and ordered Wife to leave the property. In exchange, Husband was ordered to pay Wife nearly $260,000 for her share of the home. The court reduced that amount by $145,000, which it said was the value of her exclusive use of the home for the time that Wife lived there alone after the split.
The trial court also said that Husband should be credited for the more than $11,000 in loan payments on the home that he made after the separation. That compensation is what California courts call an “Epstein” credit.
Affirming the decision on appeal, the Second District said the trial court didn’t abuse its discretion in calculating the Watts credit and the Epstein credit. “Where one spouse has the exclusive use of a community asset during the period between separation and trial, that spouse may be required to compensate the community for the reasonable value of that use,” the Court explained. “Conversely, when a spouse uses separate property funds after separation to pay a preexisting community obligation, the paying spouse may seek an “Epstein credit” for those payments upon division of the community estate.”
The Court rejected Wife’s claim that she didn’t know that she would be on the hook for the Watts credit when she decided to stay in the house. Instead, it noted that she sought the counsel of several lawyers throughout the process. “Any one of her lawyers would have understood the effect of her continuing to live in the house,” the Court said.
As to the Epstein credit, the Court said Husband showed that he made various loan payments from his own personal funds for a number of months before a court ordered him to start doing so. As a result, he was entitled to be reimbursed, the Court said.
If you’re considering a divorce or are grappling with spousal support and other issues in California, contact San Jose divorce attorney John S. Yohanan. With more than 30 years of experience, Mr. Yohanan is an accomplished family law attorney who has helped a number of clients resolve a wide variety of marital disputes. Call our office at (408) 297-0700 or contact us online to schedule a consultation.
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