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"Epstein Credits"

On Lawyer & Legal » Family Law

7,697 words with 1 Comments; publish: Mon, 30 Oct 2000 12:46:00 GMT; (800171.88, « »)

I just learned that California has a law on the books called the "Epstein Credits" this is when the supporting spouse of a divorce proceeding can charge the dependent spouse 1/2 of all of the community debits accumulated from the date of separtation. Does anyone know if there is a similar law in the state of Washington? (I think this only pertains to the community property states)

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    • quote:
      === Original Words ===

      Steve Hammond:

      [b]I just learned that California has a law on the books called the "Epstein Credits" this is when the supporting spouse of a divorce proceeding can charge the dependent spouse 1/2 of all of the community debits accumulated from the date of separtation. Does anyone know if there is a similar law in the state of Washington? (I think this only pertains to the community property states)[/b]


      My response:

      I don't know if Washington has a similar law (although I tend to think there's a good possibility) but, I am posting the following explanation for you so that you can use this to "jog" the brain of a Washington attorney, and also for the benefit of our readership in California:

      EPSTEIN CREDITS:

      The payments on account of preexisting community obligations constitute a discharge of the payor spouse's support duties (Marriage of Epstein, supra, 24 Cal.3d at 85, 154 Cal.Rptr. at 418): i.e., the spouse seeking reimbursement was ordered to pay an amount of temporary support which has been specifically adjusted because the court expressly orders payments by that spouse on specific debts and further provides a charge against that spouse's community property share for any payments not paid as ordered. ("Sometimes such an order may be necessary to assure payment of key debts.") [Marriage of Hebbring, supra, 207 Cal.App.3d at 1272, 255 Cal.Rptr. at 495; Marriage of Green (1989) 213 Cal.App.3d 14, 22, 261 Cal.Rptr. 294, 297-298; Marriage of Garcia (1990) 224 Cal.App.3d 885, 892-893, 274 Cal.Rptr. 194, 198-199--H's pendente lite obligation to pay mortgage on home in which W allowed to reside "in lieu of spousal support" construed to be a support obligation and hence not reimbursable by W; compare Marriage of Jeffries (1991) 228 Cal.App.3d 548, 553-554, 278 Cal.Rptr. 830, 833-834--H awarded Epstein credits for stipulated payments on CP home "in lieu of spousal support"]

      Or, if no temporary support order has issued, the right of reimbursement may be restricted so that a spouse's support obligation is considered before allowing that spouse credits for postseparation payments on community obligations. [Marriage of Epstein, supra, 24 Cal.3d at 85, 154 Cal.Rptr. at 418; Marriage of Hebbring, supra, 207 Cal.App.3d at 1271, 255 Cal.Rptr. at 494; see Marriage of Jeffries, supra, 228 Cal.App.3d at 553, 278 Cal.Rptr. at 833, fn. 4 (noting trial court apparently adjusted Epstein credits to account for "in lieu" pendente lite spousal support payments)]

      Examples

      a) Postseparation SP payments on debts incurred for acquisition of CP: Under the above principles, a spouse making postseparation payments on a preexisting community debt is not limited to reimbursement for the amounts by which the payments reduced the outstanding principal balance. Even if the underlying debt was incurred for the acquisition of community property, Ca Fam 2640 does not apply in this situation. Instead, unless the claimant spouse had exclusive use of the subject property during the postseparation period, or the payment was in reality a component of his or her support obligation, full reimbursement ordinarily should be ordered. [Marriage of Hebbring, supra, 207 Cal.App.3d at 1272, 255 Cal.Rptr. at 495]

      "Ordering reimbursement is more likely to induce payment on debts, in light of the tight financial circumstances which almost always exist between separation and trial. Because of increased costs related to separation and the dissolution litigation, few spouses have adequate income to pay all obligations fully. Thus, ordering reimbursement benefits both spouses since it offers the greatest likelihood of satisfying creditors and avoiding foreclosure, repossession or collection actions." [Marriage of Hebbring, supra, 207 Cal.App.3d at 1271, 255 Cal.Rptr. at 494]

      In addition, absent any Epstein factors negating a right to reimbursement, failure to order reimbursement would offend the equal division mandate of Ca Fam 2550, which requires that the net community estate--including community obligations--be divided equally between the spouses. [Marriage of Hebbring, supra, 207 Cal.App.3d at 1271, 155 Cal.Rptr. at 495]

      b) Postseparation payments for CP improvements: Equitable considerations (not Ca Fam 2640) likewise apply to a spouse's reimbursement claim for postseparation SP payments for improvements on community property:

      Not necessarily dollar-for-dollar reimbursement: Here, the payor spouse is not necessarily entitled to the amount actually paid for the postseparation improvements. The improvements may not have increased the property's value; or any increase attributable to the improvements may have been slight in comparison to the amount paid for them. Under these circumstances, dollar-for-dollar reimbursement might be "inequitable" . . . particularly when full reimbursement would substantially eliminate the community equity. [Marriage of Reilley (1987) 196 Cal.App.3d 1119, 1123, 242 Cal.Rptr. 302, 305--H spent $55,977 on post-separation remodeling of CP house, but equity value at disso was only $56,037: full reimbursement would have left only $330 in CP to divide with W]

      Proper equitable measure: At least where the reimbursement claimant unilaterally decided to make the expenditures, the most appropriate measure is probably the extent to which it is shown the postseparation improvements increased the fair market value of the property. [Marriage of Reilley, supra, 196 Cal.App.3d at 1124, 242 Cal.Rptr. at 305]

      But "increase in value" is not always the appropriate measure. Other equitable factors unique to the case may warrant reimbursement "in an amount which discounts a pure benefit approach. The evidence may disclose, for example, that the parties agreed that the improvement be made, or the improvement may have been necessary to preserve the asset. We leave consideration of such factors and their effect to the discretion of the trial court." [Marriage of Reilley, supra, 196 Cal.App.3d at 1124, 242 Cal.Rptr. at 305 (emphasis added)]

      An "after-the-fact" adjudication of "Epstein reimbursement rights" can be avoided, thus narrowing the issues for trial and, perhaps, enhancing the chances of settlement, by requesting an order incident to the initial OSC that specifies who pays what debts during the prejudgment postseparation period and what if any reimbursement rights ("Epstein credits") shall exist on account of those payments. [Cf. Marriage of Hebbring, supra, 207 Cal.App.3d at 1271-1272, 255 Cal.Rptr. at 494-495]

      Probably, the only situation in which this approach might not work is where there is a significant dispute over the parties' incomes (e.g., payor spouse claims income of only $3,000/mo. but payee contends payor's earnings are $10,000/mo.). Here, the determination whether Epstein reimbursement should be ordered largely depends on which of the income figures is most accurate; discovery may be necessary to resolve that issue and is not likely to be completed by the time of the initial OSC hearing. In such cases, any pendente lite order directing the payments to be made will generally reserve jurisdiction over the reimbursement issue to the time of trial.

      IAAL

      #1; Mon, 30 Oct 2000 13:56:00 GMT