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- CHAPTER 7 Property Acquired or Improved with Both Separate and Marital Property
§ 7.03 Characterizing Installment Purchases
Jurisdiction | United States |
Publication year | 2021 |
§ 7.03 Characterizing Installment Purchases
[1]—Definition
An installment purchase is a purchase transaction where the buyer promises to pay some or all of the purchase price in future installments. Installment purchases must be distinguished from credit purchases.41 In an installment purchase, the buyer merely contractually obligates himself to make payments in the future. No promissory note is signed. In addition, pursuant to a credit purchase, title generally passes when a promissory note is signed. In an installment purchase, title does not pass until the last payment is made. Although the distinctions based upon when title passes and whether there was a contractual commitment to pay installments or a promissory note may appear technical, the differences can have significant characterization ramifications.
[2]—Inception of Title Approach
Pursuant to the inception of title approach,42 property purchased in an installment sale is characterized based upon the consideration given when the installment contract was signed. Later payments have no effect upon ownership, although later payments can create reimbursement rights.43
[3]—Time of Vesting Approach
Under the time of vesting theory,44 property is characterized based upon the consideration given when the rights of either spouse in the property vested. In an installment purchase, this frequently is when the last payment is made.45 Payments made at other times merely create reimbursement rights.46
[4]—Pro Rata Approach
In contrast to both the time of vesting and the inception of title approaches, under the pro rata approach47 an installment purchase is characterized according to all contributions made toward installment payments.48 As a result, the respective ownership percentages can change during marriage, based upon the nature of the consideration used for payments.
It is not always clear how this theory will be put to practice. For example, consider the application of this theory to the purchase of a house, where a spouse purchased the property before the marriage, and the spouses live in the house during the marriage. Marital funds frequently are utilized to make the installment payment in such circumstances, and no rent generally is paid the separate estate for the use of the house. It is unclear whether any rental value offset should be made before the pro rata ownership computation is made.49
The equitable distribution states that have adopted the pro rata approach have not clarified its...
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- CHAPTER 7 Property Acquired or Improved with Both Separate and Marital Property
- CHAPTER 7 Property Acquired or Improved with Both Separate and Marital Property
- § 7.01 Property Acquired with Contemporaneous Separate and Marital Property Consideration
- § 7.02 Different Approaches to Characterizing Property Acquired Over Time
- § 7.03 Characterizing Installment Purchases
- § 7.04 Characterizing Improvements
- § 7.05 Using Marital Funds to Pay a Premarital Mortgage or Using Separate Funds to Pay a Mortgage Loan Obtained During Marriage
- § 7.06 Trust Principles and Acquisitions Over Time
- § 7.07 Characterizing Property Acquired by Adverse Possession
- § 7.08 Characterizing Life Insurance
- § 7.09 Casualty Insurance
- § 7.10 Pensions
- § 7.11 Employee Stock Options
- § 7.12 Other Employee Compensation and Fringe Benefits
- § 7.13 Long-Term Employment Contracts
- § 7.14 A Lawyer's Contingent Fee
- § 7.15 Insurance Renewal Commissions and Termination Benefits
- § 7.16 Copyrights and Patents
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