Watts (Marriage of Watts (1985) 171 Cal.App.3d 366) is a hallmark family law case it California. It stands for the idea that the community may have a reimbursement claim for the value of one spouse’s exclusive use of community property between the date of separation and the date on which the community no longer has an interest in the property. These Watts charges usually come in the form of rent charged to one spouse for exclusive use of the family residence after separation. Watts charges are an issue that is frequently argued over between the parties to a divorce, but rarely ordered by the judge at trial. An unpublished opinion out of San Bernardino sheds some light on judicial thinking when it comes to Watts claims.
Sue and Charles separated in 1995. At the time of their separation they owned their family residence and four rental properties. In 1996 Charles moves his parents in to one of the rental properties, and they began paying rent. In 2004 Sue got around to filing for divorce. In 2006 Charles began living in one of the other rental properties. As part of the divorce proceeding Sue wanted Charles to pay Watts charges. She argues that Charles’s parents had been paying below market rate rent since 1996, and that Charles should pay the difference going back to 1996. She further argued that Charles should retroactively pay fair rental value for the property that he had been living in rent free. Oh yes, Sue had been living in the family residence since separation so Charles argued that she should also be assessed Watts charges.
The trial judge denied all the Watts charges. Essentially the trial judge ruled that given the 14 year length of separation made it impossible to accurately value any Watts charges, and that it was therefore unreasonable to charge anybody with reasonable rental on the properties. The Court of Appeal upholds the trial court. The appellate court reminds us that ruling on Watts charges is left to the discretion of the trial court, and that in this case the trial judge did not abuse his discretion.
What do we take away from the decision? Basically Watts charges are going to be a gut decision for the trial judge, and as long as there is some rational basis for the trial judge’s decision, it will stand. In other words, if a trial judge does not want to deal with Watts charges, she can pretty easily dismiss them.
There is a second popular issue in this case. During the marriage Sue’s parents contributed $70,000 toward the purchase of the family residence. This happens a lot, and almost always the parents are giving the money to the couple, rather than to just their own child. However, at divorce that child almost always argues that the parents did not intend to give the money to both of them (I call it selective clairvoyance). Sue argued the payment was a gift to her, and that she should get that money back, and thus her separate property. Charles said it was given to the both of them, and was thus community property. Sue loses. The question before the court was whether Sue’s parents intended their $70,000 contribution to be a gift to Sue or an advance on her inheritance. Substantial evidence supports the court’s determination that Sue’s parents intended the sum to be a gift to the community and not to Sue alone. Charles’s testified that the $70,000 sum the parties received from Sue’s parents in 1984 was used to purchase the parties’ Ontario residence, and was repaid in 1985 with funds the parties received from the sale of their Upland residence. . . Other than her own testimony, Sue produced no evidence, including a will or any other writings, indicating her parents intended the $70,000 sum to be a gift to her alone, or an advance on her inheritance, rather than a gift to the community.