California Family Law Concept: Watts Charge

Concept: Watts Charge

Citation: In re Marriage of Watts (1985) 171 Cal.App.3d 366 (California Court of Appeal); Family Code § 2626 (authority for post-separation reimbursements); In re Marriage of Jeffries (1991) 228 Cal.App.3d 548 (applying Watts).
Relevant Rulings: The Watts rule originates from Watts, where the court held that a spouse’s exclusive post-separation use of community property could result in a reimbursement to the community. Subsequent cases (like Jeffries) clarified that such reimbursements (often called “Watts charges”) are to be factored into an equal division of property, and confirmed the court’s discretion to order them when fair. No statute explicitly uses the term “Watts charge,” but California courts have embraced the concept through case law, and Family Code provisions (e.g., § 2626) acknowledge the courts’ power to order reimbursements in appropriate circumstances.

Explanation: A Watts charge is a financial reimbursement in California divorces that is applied when one spouse has exclusive use of a community property asset after the date of separation and before the division of property (typically at trial or settlement). In plain terms, it means the spouse who gets the sole benefit of a community asset during separation may owe the “community” (and effectively the other spouse) money for that benefit. The classic example is one spouse living in the family home (a community asset) alone after separation – the court can assign a reasonable rental value to that exclusive use and require reimbursement. The purpose of a Watts charge is to ensure fairness in property division: it prevents one party from getting an unfair head start or extra benefit from a community asset. By charging for the post-separation use, the value of that use is added back into the community pot so it can be split equally. Watts charges most often apply to substantial assets like real estate (homes, rental properties) but can apply to any valuable community asset with a use value (for instance, a vehicle, boat, or even a business or piece of equipment, if one spouse had sole use of it). Importantly, the imposition of a Watts charge is not automatic; it is within the family court’s equitable discretion. The court will consider all the circumstances – including whether there were any agreements between the spouses about the asset, whether the asset’s value was factored into any support payments, and whether the spouse’s exclusive use was offset by other payments. For example, if the occupying spouse was also paying the mortgage, property taxes, or other community expenses on that asset (often giving rise to an “Epstein credit” for paying community debt), the court might offset the Watts charge by those amounts. Likewise, if the spouses agreed that one could stay in the house in lieu of paying rent or in exchange for lower support, a Watts charge might be reduced or waived. In summary, a Watts charge ensures that when community property is divided, both parties share equally in the benefit of any community asset – even if one of them enjoyed that benefit alone during separation – thereby maintaining the principle of equal division under California law.

Examples:

Exclusive use of family home: After a couple separates, the wife remains living in the community-owned family residence for 12 months while the husband moves out and rents his own apartment. The family home has no mortgage and could be rented out for $3,000 per month. Because the wife had exclusive benefit of this community asset, the court can impose a Watts charge for the home’s use. If the fair rental value is $3,000/month for 12 months, the total use value is $36,000. A Watts charge would make that $36,000 an item to be reimbursed to the community. In practical effect, the wife would owe $36,000 to the community property account, which means when assets are divided, she will receive $36,000 less (and the husband $36,000 more) to account for her having lived rent-free. Since each spouse is entitled to half the community, the husband effectively gains $18,000 (half of $36,000) more than he would have without the charge, compensating him for not having use of the home.
Car or other asset usage: Suppose the spouses own two community cars outright (no loans). After separation, Husband takes one car and Wife takes the other. If both cars are similar in value, usually no issue arises. But if, for instance, there was only one community vehicle (say a high-value car) and Husband kept exclusive use of it after separation, the Wife might request a Watts charge for the car’s use value. For example, if the reasonable monthly lease or rental value of the car is $500, and Husband used it alone for 10 months before the divorce, the court could assign a Watts charge of $5,000 (10 × $500) to Husband’s side of the ledger. This would effectively credit Wife with $2,500 (half of that amount) upon division to equalize the benefit. Another scenario: imagine a vacation cabin owned as community property. After separating, one spouse moves into the cabin or uses it every weekend while the other spouse can’t use it. If the cabin has a market rental value (say $1,000 per month), the spouse using it exclusively may be charged that amount per month as a Watts charge, so that the other spouse gets compensated for the lost opportunity to use or rent out the cabin.

Cases:

In re Marriage of Watts (1985) 171 Cal.App.3d 366 – This landmark case gave the Watts charge its name. In Watts, the husband remained in the family residence and continued using a business (medical practice) that was community property after separation, while the wife did not have access to those assets. The trial court initially thought it had no authority to charge the husband for that post-separation use. The Court of Appeal disagreed, holding that the community is entitled to reimbursement for the value of one spouse’s exclusive use of a community asset from the date of separation to the date of trial. Holding: A family court can order a spouse to compensate the community for the reasonable value of exclusive use of community property during separation. This decision established the principle that such compensation (later dubbed a “Watts charge”) is an equitable remedy to ensure both spouses share that value. The Watts case is the foundation of the rule, often cited at 171 Cal.App.3d at pages 373–374 for the concept that a spouse may be charged for exclusive occupancy of a community home post-separation.
In re Marriage of Jeffries (1991) 228 Cal.App.3d 548 – This case illustrates how Watts charges work in practice alongside related reimbursements. After separation, the wife in Jeffries lived in the marital home for about a year, and the husband, instead of paying her spousal support, paid the monthly mortgage during that time. At trial, the court credited the husband for those post-separation mortgage payments (an “Epstein credit”) and imposed a Watts charge against the wife for her exclusive use of the home valued at $1,800 per month. The total use value ($1,800 × 12 = $21,600) was added to the wife’s share of the community property, and the husband’s $9,000+ of mortgage payments were added to the community (benefiting him). The wife argued on appeal that this was unfair, but the Court of Appeal upheld it, explaining that both adjustments were paid to the community and thus each spouse ultimately bore half of each amount. Reasoning: The court emphasized that Watts charges (for exclusive use) and Epstein credits (for paying community debts) are tools to equalize the division. In this case, by charging the wife $21,600 for use of the home (thereby effectively giving the husband half of that value, $10,800, in the division) and crediting the husband for $9,063 of paid expenses (effectively giving the wife half of that benefit, since it reduced community debt), the trial court achieved an equal division as required by law. Jeffries confirms that it is not “double dipping” to apply both a Watts charge and an Epstein credit in the same scenario – they address different contributions – and that doing so can be equitable when one spouse both pays the expenses and enjoys exclusive use of an asset. It also notes that both spouses share in Watts charges: the charge is owed to the community as a whole, so the benefiting spouse ultimately pays only half and the other spouse effectively gains that half.
In re Marriage of Braud (1996) 45 Cal.App.4th 797 – The Braud case highlights the meaning of “exclusive use” and the court’s discretion in imposing Watts charges. In this case, the wife stayed in the family home after separation and even went so far as to remove the husband’s belongings, essentially excluding him from the house. The husband was only occasionally coming by (a couple days a week) to wash clothes and use one room, but not residing there. The trial court imposed a Watts charge against the wife for the fair rental value of the home during her post-separation exclusive occupancy. The wife appealed, arguing that because the husband had some access to the house, it wasn’t exclusively hers. The Court of Appeal disagreed, finding that the wife’s possession was effectively exclusive – minor visits by the husband for laundry did not diminish her sole beneficial use of the home. Holding: The appellate court upheld the Watts charge and stated that trial courts have broad discretion to order such charges, and must consider all circumstances to decide if it’s fair. Notably, Braud (at pp. 818–819) reiterated that there are no hard-and-fast rules for when a Watts charge should be ordered; rather, the judge should weigh what’s equitable, including whether the out-spouse was prevented from using the asset. In Braud, because the wife had essentially kept the husband out and enjoyed the home’s full value, it was equitable to charge her for that benefit. The case affirms that “exclusive use” means one spouse enjoying an asset to the exclusion of the other, even if the other spouse sets foot on the property occasionally for trivial reasons, and it underscores judicial discretion in such reimbursements.
In re Marriage of Boblitt (2014) 223 Cal.App.4th 1004 – This is a more recent case where Watts charges were significant in a complex property dispute. In Boblitt, after separation the husband had sole use of a piece of community real estate (referred to as the “Hedge Avenue property”) for an extended period. The parties actually stipulated that the fair rental value of that property was $3,000 per month. At trial, the court imposed a Watts charge requiring the husband to reimburse the community $3,000 per month for each month of his exclusive use. The total came to 22 months × $3,000 = $66,000 that he owed to the community. The wife contended on appeal that the trial court should continue charging him even after trial (since he remained in the property post-trial), but the Court of Appeal held that Watts charges are generally limited to the period between separation and the division of property at trial. Key points: Boblitt reaffirms that the purpose of Watts charges is to compensate the community for the reasonable value of exclusive use of a community asset during the separation period. It also explicitly noted that ordering a Watts charge is within the trial court’s broad equitable discretion – meaning the judge can decide if and how much to charge based on fairness (the decision cited that imposing such a charge is not mandatory but an equitable call). In a footnote, the court pointed out that after property is divided (or after trial), continuing to assess Watts charges is not typical unless perhaps agreed to, because at that point the asset usually belongs to one party. In sum, Boblitt illustrates a straightforward application of Watts (with a large dollar amount) and emphasizes judicial discretion and the cutoff at property division.
In re Marriage of Mohler (2020) 47 Cal.App.5th 788 – This notable recent case extended the Watts charge concept to a hybrid ownership situation. In Mohler, the husband had purchased a house before marriage in his sole name (separate property), but during the marriage the couple used community funds to pay down the mortgage, thereby giving the community an interest in the home under the Moore/Marsden rule (a formula that determines the community’s percentage interest in a separately owned home that is paid for with community money). At separation, the community’s interest in the house was calculated to be about one-third. The husband, however, continued living in that house by himself for six years after separation before the trial occurred, and he kept paying the mortgage (now with his post-separation, separate income). The trial court increased the community’s share of the home because of those post-separation payments, treating it as if the community interest grew to almost 65%. The Court of Appeal disagreed with automatically growing the community share after separation, but said the proper way to account for the husband’s post-separation benefit of living in the home was through a Watts charge. Holding: Even though the property was partly separate, the husband’s exclusive occupation of a home in which the community had an interest justified a Watts charge for the community portion of the home’s rental value post-separation. The appellate court explicitly held for the first time that Watts charges can be applied in situations where an asset is only partially community property (due to Moore/Marsden). In practical terms, the husband would owe rent for his use of the portion of the house owned by the community (here, one-third of the home’s rental value for the time he lived there after separation). Mohler thus broadened the Watts doctrine: a spouse cannot avoid a Watts charge merely because the asset was originally separate property, if the community has a share in it – the community must be compensated for that share’s use. This case underscores the flexibility of Watts charges as an equitable tool to protect the community’s interests.

Formula: Courts typically calculate a Watts charge by determining the asset’s reasonable rental value for the period of exclusive use, and then assigning the portion of that value that corresponds to the other spouse’s interest. In most cases (where the asset is entirely community property), that means the using spouse owes half of the fair market rental value for the duration of exclusive use. The basic formula can be expressed as:
Watts Charge = (Fair Rental Value per month – Any expenses paid toward the asset) × ½ × Number of months of exclusive use.

Each component of this formula is considered carefully: “Fair Rental Value” is the market rate at which the asset (house, car, etc.) could have been rented out or is worth in use per month. This is often established with evidence like rental listings or expert opinion (for a home, a realtor might testify that the house could rent for, say, $2,500 a month). “Expenses paid” by the occupying spouse are costs like mortgage payments, property taxes, insurance, or necessary maintenance that were paid during the same period – particularly if they were paid with that spouse’s separate funds after separation. The reason to subtract certain expenses is that if the spouse is paying the mortgage or upkeep, they are contributing value that benefits the community (or maintaining the asset’s value), and it wouldn’t be fair to charge full rent on top of that without credit. In essence, those payments (often leading to Epstein credits) offset part of the use value. After subtracting any such expenses, you get the net benefit of living in or using the asset. Typically, only the other spouse’s half of that net benefit is charged, because the using spouse’s own half of the community asset is something they are entitled to enjoy. Multiplying by the “Number of months” (or days, as appropriate) of exclusive use then gives the total charge for the entire period. This resulting amount is owed back to the community pot.

Example of calculation: Suppose a community home has a fair rental value of $2,000 per month. One spouse lives in it alone for 6 months after separation. During those 6 months, that spouse also paid $1,200 total in property taxes (out of their own pocket). The gross use value is $2,000 × 6 = $12,000. Subtracting the $1,200 in property taxes (a community expense) leaves a net rental benefit of $10,800 for those six months. Since this was a community asset, the other spouse’s half-share of that benefit is $5,400. So the court could order a Watts charge of $5,400, meaning the community is credited with $5,400 attributable to the occupying spouse’s use of the home. In the property division, that $5,400 would effectively go to the non-occupying spouse (either as an extra $5,400 in assets or cash, or a reduction of what the occupying spouse receives). The occupying spouse in turn has, in effect, “paid” $5,400 for the 6 months of exclusive home use (which makes sense, as that is equivalent to paying $900 rent per month for the half interest not their own). If, in another scenario, the spouse’s payments to maintain the asset equal or exceed the rental value (for example, they paid mortgage and taxes that sum to about the same as rent), the Watts charge might be minimal or zero because their contributions already compensated the community. On the other hand, if no significant expenses were paid by the occupying spouse, the full half of the rental value would typically be charged. This formula ensures each spouse gets their equitable share of any community asset’s value, even during times one spouse was the only one using it.