Wrangling Reimbursements

• Publication year: 2020
• Author: Justin O'Connell

Wrangling Reimbursements

Justin O'Connell

Justin M. O'Connell is a partner at Cavassa O'Connell, located in Monterey, California, where his practice includes family law and civil litigation. Mr. O'Connell is a Certified Family Law Specialist, served as a Commissioner on the California State Bar Family Law Advisory Commission from 2012 to 2015, and is currently the Legislation Chair of the California Lawyers Association Family Law Executive Committee (FLEXCOM). He has been the professor of Property Law at the Monterey College of Law since 2007, and a member of the Alternative Dispute Resolution Executive Committee for the Monterey County Superior Court since 2013.

In the hustle and bustle of practice, sometimes fundamentals can be applied overbroadly to simplify complex issues. Family Code section 2640 can be one of those overbroadly-applied fundamentals. It is well-known to all family law attorneys and judges, but it is open to misapplication. A lawyer might tell a client that her reimbursement claims are limited under section 2640 out of habit, without delving into which reimbursements are actually addressed by section 2640. At times, the trial court might need clarification that section 2640 does not actually say what opposing counsel says it does. Caselaw routinely instructs that when interpreting a statute, one should first read the statute. That, and a little historical context, can go a long way.

Section 2640 (through its predecessor Civil Code section 4800.2) was designed to prevent what the Legislature deemed to be inequitable loss of separate property investments in the division of the community estate. However, section 2640 applies only to the circumstances that it addresses -- specifically, a contribution of separate funds to the acquisition of a community asset or the other party's separate property asset (the subdivision (c) reimbursement regarding separate property assets was added in 2004). Section 2640 expressly creates an automatic, baseline right of reimbursement but goes no further. The statute does not:

• expressly forbid an agreement that the contributing party would be entitled to get more than the value of the initial separate property investment; or
• expressly forbid reimbursement for expenses related to the property acquired (e.g. interest, taxes, or insurance).

Neither any part of section 2640 itself, nor any of its legislative history, indicates it abrogates the law with respect to agreements between parties or reimbursement for payment of expenses.

Some Historical Perspective

In See v. See,¹ the court set forth the rebuttable "gift presumption": Absent an agreement to the contrary, the use of separate property for community purposes is considered a gift to the community.² Such presumption may be rebutted under the preponderance of the evidence standard.³ Thus, a party who uses separate funds for community purposes must - to obtain reimbursement at disdsolution - prove by a preponderance of the evidence that the parties agreed such use was not a gift.

In In re Marriage of Lucas,⁴ the wife used her separate funds for the down payment for, and improvements to, a house the parties acquired in joint title. Applying the See gift presumption, the Lucas court held that wife's separate property contribution to the purchase and improvement of the house was presumptively a gift. Absent an agreement to the contrary (the wife proved none), she had no right to reimbursement.⁵ Lucas's application of the See gift presumption to wife's investment in property troubled the Legislature.

The Legislature responded to Lucas with section 4800.2, which turned the gift presumption on its head with respect to acquisition of property. Rather than presuming a separate property investment was a gift, the contributing party was given the default, absolute right of reimbursement of the amount invested (absent a written waiver to reimbursement). Section 2640, in its current form, provides as follows:

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(a) "Contributions to the acquisition of property," as used in this section, include downpayments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property but do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.
(b) In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party's

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