Use Of Separate Property To Purchase Community Property Assets

A common problem arises where a spouse used his or her separate property to buy or improve community property. In such cases, the law provides that the contributing spouse’s separate property is entitled to reimbursement only, but not any interest or appreciation in the value of the asset contributed or invested.

For example, if a wife inherits $100,000 and uses it to buy a home in the names of herself and her husband, and the house increases in value to $200,000, the wife is entitled to be reimbursed only the $100,000 she originally contributed. The $100,000 increase in the value of the house is community property that is to be divided between the spouses.

Reimbursement is granted only if the spouse who is making the separate property investment can trace the jointly held asset back to his or her separate property. In the example above, the wife would have to show documents, such as bank account statements and escrow documents, that establish a clear paper trail back to the original separate property. The Court can consider oral evidence, but that type of evidence is usually not as convincing as documentary evidence.

The law also provides that the contributing spouse can be reimbursed, even if the original property has been sold and the sale proceeds have been used to purchase another house. Reimbursement still will be allowed If the separate property contribution is sufficiently traced back to its original source.