Divorce cases in California are complex legal proceedings that involve many different statutes and Family Law Codes to keep things as fair as possible between the two parties. Watts charges and Epstein credits are two ways the California courts strive to keep financial matters and asset division split evenly, 50/50, between two parties. Understanding these two rules can help you request these events during your divorce hearing or prepare for them in advance.
Named after the 1985 Marriage of Watts case, a Watts charge (sometimes called a Watts credit) applies in divorce cases when one spouse uses community assets after separation. If, for example, one spouse continued to live in a previously shared residence or drive a previously shared vehicle after separation, then a Watts charge may come into play. Community assets include real property, vehicles, furniture, and other properties of value. The spouse that is not using the real property can make a charge against the other spouse for one half of the community asset’s use. The courts will determine use value based on the overall value of the asset and make the spouse using the asset pay this amount to the other spouse during divorce proceedings.
There are exceptions to Watts charges, such as if the spouses had a previous agreement to share property that negates the Watts charge or if the courts took fair value of the community asset into consideration already, when determining spousal support. To prove a Watts charge, a spouse needs to show evidence of the value of an asset, such as a property’s monthly rental value.
To make a Watts charge, a party must give a prior written notice to the other party of the intent to seek a credit for post-separation use of community assets. A party should give notice to another party of the intent of a Watts charge as soon as possible in litigation. Failure to give notice can lead to the courts concluding that the Watts charge claim is not within the reasonable expectations of the other party.
In a divorce case in California, the courts may issue a reimbursement to one spouse for community expenses paid after separation but before trial. For example, if one spouse makes a mortgage payment after separation, the courts may issue a reimbursement for the other spouse’s share of the expense. The courts call this reimbursement an Epstein credit, based on the Marriage of Epstein case of 1979.
Like a Watts charge, a spouse must present the desire for Epstein credits early on in litigation. A spouse must declare a Watts claim and admit it into evidence, with a written appraisal of fair value of the property if relevant to the claim. To prove an Epstein credit, one spouse must keep careful records of mortgage payments due and made from post-separation bank accounts. Without proper documentation, tracing payments can get complicated – especially if one spouse uses a joint account to make the payment.
Charges and Credits in the Same Case
Watts charges and Epstein credits may offset one another partially or completely. For example, if a spouse must pay $3,000 per month in Watts charges for living in a shared home, but the mortgage payment on the home is also $3,000 per month, the spouse will not owe anything. If one is more or less than the other, a partial offset will result. One spouse may get both Epstein credits and Watts charges. For example, a husband may get an Epstein credit reimbursement for making a mortgage payment on a home and a Watts charge against the other spouse if the wife had been living exclusively in the home on which he made payment.