🤧
Community Property • Moore-Marsden
CPROP#045
Legal Definition
When a spouse brings separate property into the marriage that they are paying off (i.e., installment purchase before marriage) and continues to make payments on the purchase price of the property from community property earnings, the payments constitute community property. To determine the character of the property, one applies the Moore-Marsden formula, in which the community interest is proportional to the amount by which the community payments reduce the debt principal (and only the debt principal). Thus, the reduction of principal—not the interest, taxes, or insurance—is the only factor. The amount of principal reduction divided by the purchase price of the property, multiplied by the value of the property at the time of divorce, yields the community portion of the property.
Plain English Explanation
Let's say Mary owns an antique car shop before she gets married. Her prize possession is a 1965 Ford Mustang worth $75,000 that she keeps locked away in storage. Mary paid cash when she originally bought the Mustang before meeting her husband John.
A few years into their marriage, Mary decides restore the Mustang to mint condition so she can display it in her shop and hopefully sell it for a profit. Mary takes out a $20,000 restoration loan and she and John use community property funds to make the loan payments.
If Mary and John later divorce, does John have any claim to the increased value of the restored Mustang? After all, community funds helped pay for the renovations.
Here's where the Moore-Marsden formula comes in. It calculates John's interest based on the loan principal payments made with community funds compared to the original purchase price of the Mustang (which was $75,000). So if they paid $15,000 toward the principal on the $20,000 restoration loan, that represents 20% of the Mustang's original prenuptial value (15,000 / 75,000 = 20%).
Therefore, John would have a 20% community property interest in the Mustang's current value after restoration. So if Mary ends up selling it for $100,000, John has a claim to 20% of $100,000 or $20,000 under Moore-Marsden.
The formula balances Mary's separate interest with the community's contribution to increasing the asset's worth. John shouldn't automatically split the proceeds 50/50 when Mary bought the car before marriage. But he should benefit from investment of community funds to restore the car.
Proration Formula:
[(Principal Reduction During Marriage) / (Purchase Price of Property)] (Value of the Property at Divorce)
A few years into their marriage, Mary decides restore the Mustang to mint condition so she can display it in her shop and hopefully sell it for a profit. Mary takes out a $20,000 restoration loan and she and John use community property funds to make the loan payments.
If Mary and John later divorce, does John have any claim to the increased value of the restored Mustang? After all, community funds helped pay for the renovations.
Here's where the Moore-Marsden formula comes in. It calculates John's interest based on the loan principal payments made with community funds compared to the original purchase price of the Mustang (which was $75,000). So if they paid $15,000 toward the principal on the $20,000 restoration loan, that represents 20% of the Mustang's original prenuptial value (15,000 / 75,000 = 20%).
Therefore, John would have a 20% community property interest in the Mustang's current value after restoration. So if Mary ends up selling it for $100,000, John has a claim to 20% of $100,000 or $20,000 under Moore-Marsden.
The formula balances Mary's separate interest with the community's contribution to increasing the asset's worth. John shouldn't automatically split the proceeds 50/50 when Mary bought the car before marriage. But he should benefit from investment of community funds to restore the car.
Proration Formula:
[(Principal Reduction During Marriage) / (Purchase Price of Property)] (Value of the Property at Divorce)
Hypothetical
Hypo 1: Before marrying Amy, Bob purchases a car for $20,000, paying $5,000 upfront and financing the rest. During their marriage, they use joint earnings to pay $10,000 towards the car loan principal. Result: The Moore-Marsden formula calculates the community interest in the car. $10,000 paid from community earnings divided by the original $20,000 price, then multiplied by the car's current value at divorce, gives the community's share of the car.
Hypo 2: Amy owns a boat worth $40,000 with an outstanding loan of $30,000 before marrying Bob. Throughout their marriage, they pay $20,000 from their shared income towards the principal of the boat loan. Result: Using the Moore-Marsden formula, the community’s interest is calculated based on the $20,000 community payment towards the loan principal. This amount is divided by the boat's original purchase price ($40,000), and that percentage is multiplied by the boat’s value at the time of divorce to determine the community’s interest in the boat.
Hypo 3: Bob inherits a fully paid-off classic car before marrying Amy. During their marriage, they use $5,000 from community funds to restore the car. Result: The Moore-Marsden formula does not apply here. Since the car was fully paid off before the marriage and the community funds were used for restoration, not for reducing the principal of a purchase price, the formula isn't relevant for calculating community interest in this scenario.
Hypo 2: Amy owns a boat worth $40,000 with an outstanding loan of $30,000 before marrying Bob. Throughout their marriage, they pay $20,000 from their shared income towards the principal of the boat loan. Result: Using the Moore-Marsden formula, the community’s interest is calculated based on the $20,000 community payment towards the loan principal. This amount is divided by the boat's original purchase price ($40,000), and that percentage is multiplied by the boat’s value at the time of divorce to determine the community’s interest in the boat.
Hypo 3: Bob inherits a fully paid-off classic car before marrying Amy. During their marriage, they use $5,000 from community funds to restore the car. Result: The Moore-Marsden formula does not apply here. Since the car was fully paid off before the marriage and the community funds were used for restoration, not for reducing the principal of a purchase price, the formula isn't relevant for calculating community interest in this scenario.
