Divorce Document Filing & Separation Document Filing - Refernce Divorce Case - Watts Charges and Epstein Credits

If you are separating, one of the first decisions you will make is who gets to stay in the house. Regardless of whether your husband left you to live with his new girlfriend or whether you are staying because it is best for the kids, using the marital home as your residence can have financial consequences. Before you finalize your housing arrangements.

Watts charges and Epstein credits come from two landmark cases that are used as a precedent in nearly every California divorce case.

Watts Charges: In 1985, the court determined that a spouse who uses community property after the date of separation may be ordered pay the other spouse a fee for using the property. This means that you may have to pay rent to your husband in order to live in your home. He may request up to half the rental value of your property. If your home’s rental value is higher than your mortgage, you could lose money by staying in your home.

Epstein Credits: In 1979, the court determined that a spouse who pays a community debt is owed a credit on the payment. If you pay 100 percent of the mortgage, your spouse owes you an amount equal to half the payment. If your spouse pays the mortgage, you owe him half the payment. Epstein credits do not apply if the payment is made out of a shared bank account.

Epstein credits and Watts charges are applied to the divorce settlement. If you are staying in your home and your spouse is paying the mortgage, your divorce settlement may be significantly reduced by Watts charges and Epstein credits.

What can you do? You and your spouse can sign a temporary settlement agreement that includes either your mortgage payments or your stay in the home during the separation as support. When staying in the home is granted as support, no Watts charges or Epstein credits are given.

Epstein credits and Watts payments are discretionary. This means they are not automatically awarded. California family courts must consider each spouse’s income, the number of children in the home, and other factors before ordering Epstein credits and Watts charges.

Apportionment Under Van Camp and Pereira Cases - Read Before Divorce Document Preparation - Separation Document Preparation or Filing Divorce Documents with Court

In a California divorce, a spouse’s separate property is confirmed to that spouse and the community property is divided evenly between the spouses. However, it is very common for spouses to bring a separate property business into the marriage, and then continue to contribute community labor and funds to the business during the marriage. When community labor or funds are used to increase the value of a separate property business, the community is entitled to share in the increased value upon divorce.

The courts have developed two different methods of allocating earnings and profits between separate and community property. The first method of apportionment is known as the Pereira formula. Pereira is used when the increase in value of the separate property business during marriage was primarily the result of community labor and not outside market forces. The court first determines the value of the business at the time of marriage. The court will add that value to a reasonable rate of return, which is allocated as the business owner spouse’s separate property. The remaining value is community property.

When the nature of the business itself or outside market are primarily responsible for the increased value of the separate property business during marriage, the court will apply the Van Camp formula. Under Van Camp, the court will first fix a fair salary for the community labor contributed to the business. That amount is multiplied by the number of years during marriage and any amounts paid for community expenses are deducted from the salary amount. The remaining value is community property.