Reimbursements and Credits

What are Reimbursements and Credits?

In California family law, reimbursement and credits are important concepts that relate to the division of property and debts during divorce or legal separation.

​

In California, the principle of community property governs the division of assets during a divorce, implying that property acquired during the marriage is typically considered community property and subject to equal division. However, the reality is rarely so simple. Navigating the complexities of property division demands a nuanced approach, especially when it comes to safeguarding your interests.

​

At Olsen & Olsen, we recognize the intricate nature of property division in California. Our legal team is dedicated to guiding clients through the challenges posed by commingled assets, transmutation, and the nuanced distinctions between separate and community property.

​

​

What are Epstein Credits?

"Epstein credits" refers to a legal principle established in California family law through the case In re Marriage of Epstein (1979) 24 Cal.3d 76. 

​

The concept arises when one spouse uses their separate property to pay off a debt that benefits the community estate, such as a mortgage on a marital home. In such cases, the spouse who used their separate property funds to pay off the debt may be entitled to reimbursement from the community estate for the amount paid. This reimbursement is known as an Epstein credit.

​

Epstein credits can become relevant in divorce proceedings when the division of property and debts is being determined. The credited amount represents the contribution made by one spouse's separate property to the community estate, and it helps ensure fairness and equity in the division process.

​

It's important to note that the application of Epstein credits can be complex and may depend on various factors, including the intentions of the parties and the overall circumstances of the case. Consulting with a knowledgeable family law attorney is essential to understand how Epstein credits may apply to your specific situation in California.

What are Watts Charges?

"Watts charges" in California family law refer to a legal principle established in the case of In re Marriage of Watts (1985) 171 Cal.App.3d 366. This principle addresses the situation where one spouse uses community funds to pay off a separate property debt.

​

When one spouse uses community property funds to pay off the separate property debt of the other spouse during the marriage, the paying spouse may be entitled to reimbursement. This reimbursement is known as "Watts charges." It ensures fairness by preventing one spouse from unfairly benefiting from community funds without compensating the community estate.

​

For example, if one spouse uses community funds to pay off the separate property mortgage on a house owned solely by the other spouse, the paying spouse may be entitled to reimbursement for the amount paid from the community property.

Most commonly if one spouse continues to live in the family home and refuses to allow the other spouse access to the home, the displaced spouse may be entitled to the fair rental value of the home.

​

Similar to Epstein credits, Watts charges can become relevant during divorce proceedings when the division of property and debts is being determined. It's essential to understand these principles and consult with a family law attorney to ensure that your rights and interests are protected during the divorce process in California.

What is Tracing in Family Law?

In California family law, tracing is a legal concept used to identify and trace the separate property contributions of one spouse in commingled assets or accounts. This is particularly important in cases of divorce or legal separation when determining the division of marital assets and debts. Tracing involves demonstrating the separate property character of certain assets or funds, despite being commingled with community property or other separate property. Here's how tracing works:

​

Separate Property

In California, separate property generally includes assets owned by a spouse before marriage, assets acquired by gift or inheritance during marriage, and certain property acquired with separate funds during marriage.

​

Commingling

Commingling occurs when separate property funds or assets are mixed with community property funds or assets. For example, if one spouse deposits their inheritance into a joint bank account shared with the other spouse, commingling occurs.

​

Tracing

Tracing involves the process of identifying and accounting for separate property contributions within commingled assets. This can be done through various methods, such as providing documentation, records, or testimony to establish the source of the separate property funds.

​

Direct Tracing

Direct tracing involves demonstrating a clear and direct connection between the separate property funds and the commingled asset. For example, if one spouse can show that they used their inheritance to make a down payment on a house titled in both spouses' names, they may be able to establish that a portion of the house is their separate property.

Implied Tracing: Implied tracing may be used when direct tracing is not possible. In such cases, courts may apply principles of fairness and equity to determine the separate property interest in commingled assets based on circumstantial evidence and the overall circumstances of the case.

​

Reimbursement and Credits

Tracing may also be relevant in claims for reimbursement or credits. For example, if one spouse uses their separate property funds to pay off a community debt, they may be entitled to reimbursement or a credit for the amount paid.