Buying a House: What happens when you use premarital money to buy a house during marriage?

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The law around what happens when you use premarital money or inheritance to buy a house together during marriage is found in Family Code 2640. This law says that if you commingle pre-marital money to buy a joint house, then special rules apply to how the person who contributed their premarital money gets reimbursed in divorce (and death).

Family Code §2640 was created by the legislature to account for what happens when separate property (property from before marriage or inheritance) is used to buy or upgrade community property (things owned together) like a house or a car, especially if a marriage ends.

Here's how it typically operates:

1.     During Marriage:

o   If you or your spouse use separate property to buy or upgrade community property, the law allows for your separate property to be reimbursed if you decide to separate. The law does not give you any interest on that reimbursement.

o   This rule also applies if separate property is used to reduce the debt on community property.

o   This rule specifically only talks about payments that reduce the principal of a mortgage, the down payment, or capital improvement. Payments to mortgage interest, property taxes, or homeowners’ insurance are not reimbursed.  

2.     Prenuptial Agreement Options:

o   Before getting married, you both can draft a prenuptial agreement to adjust these default rules.

o   For example:

      1. You can decide that whoever spends separate property on community property won’t get reimbursed

      2. You can say that whoever spends separate property on community property will get reimbursed with some interest.

      3. You can say that the person who contributed the separate property will own a proportional share of any appreciation, in relationship to their contribution. 

3.     If No Prenuptial Agreement:

o   Without a prenuptial agreement, the default rules apply.

o   This means, upon separation, the person who used separate property for community purposes is entitled to get that amount back without any interest or appreciation before anything else is divided.

4.     At Death (If Not Specified in Prenup):

o   If a prenuptial agreement doesn’t cover what happens when one spouse dies, the Family Code §2640 reimbursement rights don’t automatically carry over.

o   This could affect how assets are distributed after death, which might not align with what you both intended.