House owned before marriage – Basic Introduction
House owned before marriage by one of the spouses mortgage-free is the separate property of the spouse who owned it before marriage. However, in many situations spouses (spouses) is paying mortgage during the marriage. The money put toward the mortgage is community property and the non-owner spouse is entitled to reimbursement during the divorce
House owned before marriage – Moore Marsden approach
This reimbursement to the spouse who married when another spouse had House owned before marriage is calculated using Moore Marsden formula
The name Moore Marsden came from the name of cases one Moore decided by the Supreme Court and another case Marsen appellate court that deals with the situation deciding whether the community should receive any money as a result of mortgage payments made during the marriage on a house that was owned by one party prior to the marriage or whether it is spouse’s separate property.
To understand how the formula works, let’s look at some numbers from the Moore case.
House was owned before marriage by the husband who bought a house for $38,300 with a down payment of $8300 and got a loan of $30,000. Before the husband gets marriage, he paid the principal on the house $7000. After the couple got married, they paid $9200 toward the principal.
The issue in the case and as a consequence Moore Marsden case analysis and the formula was is the wife was entitled to a portion of the family residence as a result of the mortgage reduction during the marriage.
Because $38,300 is the price of the house and $9200 was paid as community funds, 24% was contributed by the community. The rest – 76% was the husband’s separate property interest. That includes the down payment and loan, minus principal paid by the community.
House was owned before marriage – value increase
In this case, the value of the house at the time of the marriage -is $65,000. At the time of trial the home price – $182,500. The house appreciated in value $117,500 thus the community is entitled to 24% of the $117,500 and the principal paid during the marriage. That totals to $37400.
Thus, the total amount the wife is entitled is $18700.
House owned before marriage- the source of money for a mortgage payment.
There is an important point regarding estimated community interest in house owned before marriage. The mortgage payments in Moore case made with community property funds. If the husband made the payment with his separate property funds, it would be unlikely that the wife obtained interest in the house under the Moore Marsden formula. Also, if the mortgage payments made during the marriage were only for the interest without contribution to the principal, the community interest would be zero and unlikely wife would get any reimbursement for the house. If the community-made an improvement to the house, half of this improvement would be reimbursement for the wife’s portion.
House owned before marriage – couple purchased before getting marriage
There is another aspect of the topic house owned before marriage. We are talking about the situation when future spouses purchase house together before they got marriage.
There are definitely certain benefits to doing that. For example, couple can combine down payment and combine resources for mortgage saving rent money. They can build equity sooner instead of renting. Also by living together the couple can split utilities and household responsibilities.
On the other hand, there are some negative points in such project. Mortgages are usually 30-year commitments it is very preferable to stay in a home for min 6-7 years before considering selling it. If the relationships would start following apart such commitment would be problematic.
Another disadvantage is if you are married you are receiving several tax benefits that do not apply to single living together. If you are married you can file jointly deducting up to $10,000 of property tax, but singles can deduct up to $5,000.
The main disadvantage is if you buy a house together but only one person is on the mortgage and title, another could lose on equity. Paying a whole or part of the monthly mortgage together without being on the title can be risky.