What is California's Moore/Marsden Formula?

In the recent case of In Re Marriage of Ramsey, the Second District Court of Appeal, Steven Holmes challenged the family court’s determination of the community property interest in the family home.

Although he conceded that community funds were used during the marriage to make the mortgage payments on the house, which he bought using his separate property before marriage, he asserted the court erred by using an incorrect number in its calculation of the community property share in the house.

The reason for the court’s error? Holmes’s now-former wife, Nakiya Ramsey failed to submit sufficient evidence to allow the court to determine the correct number, and Holmes, while recognizing at trial the absence of that critical evidence, declined to submit it, believing it was Ramsey’s burden to do so.

The appellate court held that where it is undisputed that there is a community property interest in real property, it is the obligation of both spouses to ensure that the family court has the information necessary to determine that interest, no matter which spouse brought the dissolution action.

If the spouses fail to do so, the family court must direct them to furnish the missing information, reopening the case if necessary.

Ramsey and Holmes were married in 2007 and separated in 2015.  A one-day trial was held on Ramsey’s petition in 2019. The only issues at trial related to custody of the children, child support, and the community property interest in the family home.

In In re Marriage of Moore, the California Supreme Court addressed the proper method of calculating the interest obtained by the community as a result of payments made during marriage on the indebtedness secured by a deed of trust on a residence which had been purchased by one of the parties before marriage. The court set out a formula that subsequently was refined and supplemented in In re Marriage of Marsden.

Under the Moore/Marsden formula, a family court must go through the following steps to determine the community property interest:

1. Determine the amount by which the community property payments (typically, payments made from the date of marriage until the date of separation) reduced the principal on the mortgage.

2. Calculate the community property percentage share by dividing the amount determined in step one by the purchase price.

3. Determine the appreciation in the value of the house during the marriage (i.e., from the date of marriage until the date of dissolution).

4. Multiply the appreciation during the marriage (the amount determined in step three) by the community property percentage share (the percentage determined in step two) to determine the community property share in the appreciation of the property.

5. Add the community property share in the appreciation of the property (the amount determined in step four) to the amount of community funds used to pay down the principal on the mortgage (the amount determined in step one) to determine the total community interest in the property at the time of dissolution.

In order to make these calculations the court must have the following information:

a. the purchase price of the house;

b. the amount of community funds used to reduce the mortgage principal (which in many cases, such as the present case, can be determined by calculating the difference between the balance on the mortgage at the start of the marriage and the balance at separation);

c. the market value of the house at the start of the marriage; and

d. the market value of the house at dissolution.

Holmes contended on appeal that the family court erred in applying the Moore/Marsden formula by using the total amount of the mortgage payments from community funds when calculating the community property percentage share (step two, as described above). He requested that the court either correct that calculation or reverse the judgment and remand with directions to the family court to determine the amount by which community funds reduced the principal on the mortgage and use that amount to apply the Moore/Marsden formula.

Ramsey contended Holmes forfeited his challenge to the family court’s determination by failing to present evidence to establish the amounts of the mortgage payments that went to pay interest, taxes, and insurance. She also argued that even if the issue was not forfeited, the judgment should be affirmed because substantial evidence supported the court’s finding that the average mortgage payment during the marriage was $3,200.

Holmes responded that he did not forfeit his challenge because it was Ramsey’s burden, as the petitioner, to present the evidence necessary for the court to make the determination.

Although there is a dearth of authority that might have guided the family court in the evidentiary dilemma it faced, the family court erred by using the total amount of the mortgage payments when calculating the community property interest in the house, in light of the evidence that a significant portion of those payments went to interest, taxes, and insurance rather than to principal.

The California Supreme Court made clear in Moore that the amounts paid for interest, taxes, and insurance cannot be used when determining the community property percentage share.

Both spouses had an equal interest in ensuring that the court had sufficient information with which to fulfill its judicial responsibility. As the mortgagor, Holmes was in the best position to provide the evidence needed to establish the reduction in principal on the mortgage.

Finally, in light of the court’s obligation to determine the value of the community property interest in the house, and its recognition that there was an absence of evidence, the court should have required the parties to furnish the additional evidence it needed to make the determination.

Such a requirement, especially when the information is readily available to one of the parties, is consistent with the Legislature’s stated public policy to favor the reduction of the adversarial nature of marital dissolution and the attendant costs.

The judgment was reversed to the extent it determined the community property interest in the family home, and the matter was remanded with directions to the family court to hold a limited retrial solely to determine the amount by which community property funds reduced the mortgage principal.

At that limited retrial, the family court must require the parties to produce the necessary evidence and then recalculate the community property interest in the house by applying the Moore/Marsden formula.

LESSONS:

1.         The Moore/Marsden formula is the proper method of calculating the interest obtained by the community as a result of payments made during marriage on the indebtedness secured by a deed of trust on a residence which had been purchased by one of the parties before marriage.

2.         The amounts paid for interest, taxes, and insurance cannot be used when determining the community property percentage share.

3.         Both spouses have an equal interest in ensuring that the court has sufficient information with which to fulfill its judicial responsibility.

4.         The California Legislature’s stated public policy is to favor the reduction of the adversarial nature of marital dissolution and the attendant costs.