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The Days Between: Epstein, Watts and Divorce Mediation

by | Aug 17, 2023 | Divorce, Mediation

For Grateful Dead fans there is this time period called “Days Between” which is the stretch between August 1st when Jerry Garcia, one of the band’s founding members, was born (8/1/42) and August 9th, when he died (8/9/95).   “Days Between” also happens to be one of the Dead’s many fabulous songs.  For fans it is a time to reflect and celebrate Jerry Garcia’s genius and incredible contributions to the world of music.This year’s tribute finished up just last week.   In Divorce there is a different sort of “Days Between” which is the period of time from when the divorcing couple decides to separate to when the divorce is either settled or goes to trial and final decisions are made.  In California there are a number of statutes and cases that have addressed what happens during this time of limbo as the terms of the divorce are being sorted out.  Today’s blog is going to focus on two important concepts which arise during this time frame, Watts charges and Epstein credits, which set some parameters and ground rules on what is to take place in the days between separation and final divorce.


Marriage of Epstein and “Epstein Credits.”  An Epstein credit is a claim for one spouse to be reimbursed for using separate funds to pay community obligations during this in-between period.  It is named after a 1979 case called Marriage of Epstein.  Taking a step back, everything accumulated by a couple from when they get married, to when they separate, is considered a community asset and/or a community obligation.  Any income during this time frame is considered income to the community.  Once the couple separates, the accumulation of community property stops, and any income earned after the separation is considered the separate income of the spouse earning it.  If after separation a spouse uses money they earned after separation to pay for a community obligation arising from during the marriage, they are eligible for seeking a reimbursement for paying the obligation.  The Epstein case has since been incorporated into a statute, Family Code Section 2626 which states: “The court has jurisdiction to order reimbursement in cases it deems appropriate for debts paid after separation but before trial.”


During this in-between time the Court has the ability to credit a spouse for payments made to joint obligations as things are getting sorted out.  This can result in pretty substantial claims of reimbursement the longer the time frame between separation and final divorce.  In litigated divorce this time frame typically stretches for well over a year.  With divorce mediation the time frames are typically significantly shorter as the issues are more timely addressed but oftentimes couples have been separated for lengthy periods of time before they seek to begin work on their divorce.  


Another important thing to note with Epstein credits is that they are discretionary.  As Family Code 2626 indicates, the Court can order them in “cases it deems appropriate.”  It does not say the Court “shall order” them.  A spouse paying community obligations after separation should not operate under the assumption that there will be reimbursement as the Court could very well decide that a credit will not be given.  There are also a number of other considerations that might play a role in the Court’s decision whether to grant or deny Epstein credit claims.


Marriage of Watts and Watts ChargesMarriage of Watts was a 1985 case that addressed charges for a spouse’s use of a community asset during this time frame between separation and final divorce.  A Watts charge is based on recognizing the community use value of assets and if a spouse is enjoying the use of the asset they can be charged for this use value.  A good example is the use of the family home.  If neither spouse was living in the home, the community could bring a renter in and charge a fair rental amount for that renter’s use of the home.  If a spouse stays in the home they can be charged the fair rental value of their use of the home and the other spouse can be credited for one-half of the rental value being received by the other spouse.  


Offsets and Payments  More frequently when a spouse remains in the home they are often paying the mortgage and other expenses related to the home.  In this case there is an offset for the payments being made against the use value being received.  For example, if the mortgage and other costs related to the home being paid by the “in” spouse are $3,500 per month and the fair rental value of the property is $3,500, then the Watts charge would be offset by the Epstein credit and there would be no right of reimbursement or charge for the use.  When one is greater or lesser than the other the potential for a reimbursement claim arises.  The Watts/Epstein analysis does not just apply to the family home but can apply to vehicles, recreational assets, timeshares, etc.  Typically if a spouse is using a vehicle and paying the car loan associated with the vehicle there would not be a claim to be reimbursed for the payment and there likewise would not be a claimed charge for the use of the vehicle.  


Support’s Impact on Epstein and Watts Credits  Typically in a litigated divorce a spouse will file a motion with the Court early in the case to get orders for child and/or spousal support to aid in managing the finances pending divorce.  Before the support issue comes before the Court couples typically will make informal arrangements to manage the finances before the orders are made.  During this time period when “voluntary” support is being paid there are often more potential claims for credits arising as in lieu of support the one spouse might be paying the expenses of the other spouse.  The fact that the other spouse is helping financially may deter the other spouse from petitioning the Court for formal support orders.  When the Court considers the Epstein claims for time periods when support orders were not in place the Court may be less inclined to grant the credits as the payments were being made in place of support.  If the payments were greater than what support would have been ordered then there is a greater chance at least some credit would be granted in an amount in the ballpark of the voluntary support over what the obligation would have been.


The Court is more inclined to grant Epstein credits and Watts charges for the period of time after support orders have been made.  In these situations a spouse may very well be compensated for community obligations being paid on top of them meeting support obligations.  During these same time frames a spouse enjoying the use of an asset, such as a fully paid off family residence, is more apt to be charged the fair rental value of the residence given that they are receiving support and enjoying rent free living.


Agreements to Avoid Epstein and Watts Surprises  A good strategy for avoiding being unpleasantly surprised by Epstein and Watts issues at the end of the case is to address them as you go.  In litigated cases the Court can consider who should be responsible for debt payments and determine how Epstein and Watts claims play into the support amount being ordered.  Whether litigating or mediating couples can discuss as part of the management of the finances, who will pay what and what, if any, credits will arise from such payments.  This will avoid one spouse suddenly being held responsible for reimbursing the other spouse for substantial payments made to community obligations and will avoid the paying spouse from being shocked to find that they are not being credited for substantial payments made using their separate funds.  Using processes that shorten this days between time frame is another way to minimize the issues. The time frame for resolving a divorce through mediation is often weeks and months versus the time it takes to resolve a litigated divorce which is often years.  This much shorter time frame usually results in few issues regarding these reimbursement claims in mediated cases.  


This period of time stretching from when a couple has separated to when they have fully resolved their divorce can give rise to some challenging issues.  These challenges include sorting out a reasonable resolution of how the family finances will be handled in the short and long term.  Having clear communication and coming up with a plan to reasonably navigate the management of the finances during this “days between” time  can help both parties avoid financial landmines and surprises arising from reimbursement claims and charges.  


There were days

And there were days

And there were days between.

-Jerry Garcia and Robert Hunter