Understanding Epstein credits and Watts charges in divorce

Many people hear the phrase "Epstein credits" and "Watts charges," and wonder what that is all about.

An Epstein credit is a right to be reimbursed by the other spouse for one-half of separate property money used after the date of separation to pay a community debt.

A Watts charge is an obligation to the other spouse for one-half of the reasonable value for the exclusive use of a community asset after date of separation.

So, if the parties own a house, the monthly mortgage payment is a community debt. But, when one spouse uses their post-separation, separate property earnings to pay that debt, they are using separate property funds to pay a community debt. The community of Husband and Wife owe the separate of the one spouse reimbursement for that money. Since we do not repay ourselves, that effectively means that one spouse owes the other one-half in reimbursement.

And, if one spouse is exclusively using a community asset, such as a house or a car, then that spouse owes the community for the reasonable use of that asset, which is akin to "rent." For example, the reasonable use of the Mercedes might be $500 per month. Then the spouse using the community vehicle would owe "rent" to the other spouse at the rate of $250 per month.

Often these claims offset each other. If the mortgage is $3,000 a month and the reasonable rental value is $3,000 per month, then the claims would offset. But, if the mortgage is $4,000 per month while reasonable rental value is only $3,000 per month, then there would be a $1,000 per month difference, for which the other spouse would owe half ($500 a month).

You see these situations when a house was purchased long ago or with a lot of cash down so that monthly payments are much lower than the current reasonable rental value or when a car is owned free and clear.

Judges tend to not like these claims because they can effectively create an asset (money to be divided or moved from one side to the other that does not exist except in theory). But, these are valid claims that need to be considered in a divorce case.

If you are concerned about Epstein credits and Watts charges in your personal life, call my office today. We will review your financial standing and determine what, if any, charges and credits apply.

Call the office at (916) 925-7177 or visit our website at www.FamilyLawLitigators.com.

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