Reimbursements - Epstein Credits And Watts Charges (Part 1)

 

After divorce, each spouse ideally would shake hands, say “I wish you well,” take his or her share of the community property, and live happily ever after. While possible, the vast majority of divorces are much less cordial, and more complicated regarding the division of community property. One level of complication is the issue of reimbursement.

For simplicity, I will discuss two common scenarios raised by clients in our family law practice about Epstein credits and Watts charges. Additional reimbursement scenarios will be reserved for Part 2 of this Family Law 101 topic.

Background

Generally, all income received and debt incurred during marriage belongs to the community, which is both spouses. Also, the income received after date of separation belongs to the income earner alone.

Client Scenario 1

I paid a community debt with income I earned after date of separation. This is unfair because the debt was my spouse’s debt too. Can I ask my spouse to reimburse me?

This reimbursement request is referred to as Epstein credits. You may ask your spouse for reimbursement, or the court to order it, but it is not guaranteed. Depending on the circumstances of the payment, the court may not be able to order reimbursement.

Circumstances affecting reimbursement include, but are not limited to: whether the payment was made according to an agreement between both spouses; whether the payment was stated to be a gift; whether the payment was made toward a piece of property exclusively used by the paying spouse; or even fairness concerns relating to disparity of income between the spouses. We recommend consulting with your attorney to discuss whether you are affected by any of these factors when seeking reimbursement or defending against a request for reimbursement. [Insert link to Disclaimer page]

Client Scenario 2

My spouse and I separated months ago. I have been living in our community property home while my spouse has moved out. I am paying the mortgage with community income. I do not have anything to worry about, right?

Here, the other spouse may request a reimbursement for reasonable rental value of your use of the home. This reimbursement request is referred to as Watts charges. Generally, this scenario applies to one spouse’s use of community property to the exclusion of the other, whether the property is money, cars, homes, etc. 

Similar to Epstein credits, discussed above, whether Watts charges are awarded is a fact intensive process. An order for reimbursement will depend on agreements between the spouses, fairness, whether one or both parties had access and use of the property and other factors. Again, consulting with your attorney on this subject is highly recommended. [Disclaimer]

Our family law team at Naimish & Lewis can advise you on this and other dissolution and divorce related matters involving community property. To schedule an initial consultation with an attorney at our firm, please contact us.