answer 1st as community property state and 2nd as equitable distribution:

Sara and Kevin Moore retained the law firm you are employed by to mediate their case. The law firm specializes in mediation and rarely handles litigated divorces. The pros and cons of settling their case by mediating - versus lengthy and expensive litigation -- were explained by Mary Taylor, one of the mediators at the firm. They are also aware that the firm does not represent either of them. This was explained in writing and confirmed by their signatures. The conflict involves the family home, including premarital and marital funds, possibly comingling, work done to the house, and money spent on an expensive vacation. Instructions Prepare an informal memo to Mary Taylor detailing how a court will likely treat their property if they disagree. Provide suggestions to Ms. Taylor that can be proposed to the Moore's to facilitate settling their case. Your memo is based on your state's laws. The following is transcribed from the meeting: Mary Taylor (MT): As I understand it, you bought the house about twelve to thirteen years ago and made a substantial down payment. So, $60,000 on a total purchase price of $180,000? Is that correct? Sara Moore (SM): Right. Kevin had that money from his grandmother's will, and we knew if we put that much into the down payment, we could get the mortgage payments down low enough so it wouldn't be a big strain. It would also help us qualify for a loan because neither of us had good credit. Kevin Moore (KM): It turns out to have been about the best investment I could have made. The house has tripled in value since then, maybe even quadrupled. Although, I realize it's a seller's market. The best thing that could have happened to us was the market crash which dropped interest rates and created a home-buying frenzy. I guess every dark cloud has a silver lining. MT: I can believe it. The real estate market is hot right now. I get offers in the mail for my home all the time. It's crazy. Trust me. My husband and I are tempted to sell and relocate. So, since it's hard to guess the value, it's probably best if an appraisal is done at some point, depending on what you decide to do. So is it fair to say the house is worth $470,000 or so? KM: At least that. A house down the block, which is about the same size, but on a smaller lot, sold for $525,000. And that house could use a little fixing. MT: Okay. And you've reduced the principal on the loan by $20,000, so assuming a value of $500,000, you've got equity of about $350,000 in the house. KM: At least that. I wouldn't be surprised if we could sell it for $550,000. SM: But we aren't going to sell it; at least, not right now. KM: I said we would talk about that, and I'm still willing to talk. But I don't think anything's been decided. SM: I think you know why it's important for the kids to stay in the house, and you've told them they'd be staying there. I can't believe you'd go back on your word. KM: I'm not going back on my word. SM: Then what is there to talk about? KM: Well, the timing for one thing. I can't have my money tied up in that house forever. I need to find a place to live in the neighborhood, so it doesn't disrupt the kids' school and their friendships. I'll also be paying more for a house because of this market. MT: It sounds like the two of you will need to discuss the house and come to a specific agreement. What we're trying to do now is to get a clear picture and what would happen with the house if you go to court. Are you still interested in doing that? KM: I am. I think Sara needs to know the legal situation and how much she's asking for. SM: Don't worry about me. I said I wanted to know what the law is. It's not only your money that's tied up in the house. MT: The good news is that there are no visitation and child support issues, which is why most cases get litigated. We'll figure out the money issues, but let me clear something up first. It is not easy, I know, to defer the sale of the house since that's often a couple's primary asset, as it is in your case. But it's something a court could do. You've already agreed that the kids will be with Sara about 80% of the time because of your work schedule. When that's the case, when one parent has primary custody, a judge can award the family home to that parent until the kids get through high school or at least get over some of the destabilizing effects of the divorce. So if you agree to wait a few years to sell the house, you won't be doing something that different, or that doesn't happen in court regularly. KM: The court could do that even if I objected? How could a judge tell me what to do with our house? MT: It happens often. You would both have to argue your case. Ultimately, the question is whether it's in the children's best interests. But you need to understand that is one of the benefits of mediation. You are both in control of the situation versus the judge, who may rule in ways you both disagree with. But once you give the court jurisdiction or the power to rule on the issues, you both have to abide by the court's rulings. KM: And that's true even if the house is about 70% mine like it is? SM: It's not 70%. KM: Close to it. SM: I don't know where you get these figures from. You are making up facts as you go along. KM: I -- MT: We definitely need to figure out if Kevin has a separate interest in the house, and if so, how much. SM: Yes. I think that's crucial. KM: I agree. MT: Okay, so let's go into some of the details of the law. You said the $60,000 down payment came from Kevin's inheritance. When did your grandmother die, Kevin? KM: About fifteen years ago, it took a while to settle the case because it was tied up in probate. I got the money about a year before we were married. MT: And you bought the house in the second year of your marriage, right? SM: Right. I was pregnant with our first child at the time, and we knew we wanted to buy sooner or later. MT: Did any part of the down payment come from your joint funds, the money you earned after marriage? SM: Well, the $60,000 was from Kevin's account, but we paid all the closing costs -- you know, title insurance and loan fees and everything -- from our savings. It's on one of those documents. I think it was around $3,600. MT: Yes, I see it, $3,823.80. And I take it all the mortgage payments were made from joint funds? KM: Yeah, but I did put another $20,000 into repairs and other stuff. We needed a new roof and some exterior painting done, and we also added a skylight. We didn't have enough saved up on our own, so we decided to use the rest of my inheritance rather than take out another loan. MT: So you paid for the painting, a new roof, and a skylight. Anything else? KM: We also went to Hawaii for a vacation about that time, and I think I took some money from our savings for that. MT: But $20,000 was all you put in from your inheritance? KM: Yes, because that was all I had left. Well, I did buy a car initially. MT: Sara. Did you put in any of your money? SM: No. I was close to finishing school when we married and didn't have much to contribute, and Kevin wanted me to finish my degree. But I would like to give you my view on the $20,000 you were talking about. At the time, Kevin said that he was giving us that money. He said it wasn't much use sitting in the bank and wanted to use it where needed and that we could get more out of it that way. It's only lately that he has claimed it was a loan or something. But at the time, he said he wanted to fix up the house and that he didn't want more debt. KM: I agree that I said something like that, but neither of us thought we might split up in those days. SM: Well, somehow, it still doesn't seem fair that you get that money back. I might have said "no thanks" if I'd known you would charge interest like a bank. MT: From what you've said, I'm not sure Kevin would have a definite right to that $20,000. But it's an issue we'll evaluate. KM: Fine with me. I don't want anything I'm not entitled to. MT: Okay, why don't we go back to the initial purchase of the house and explore what you remember about that. I will ask each of you a couple of questions, and while doing that, I will ask the other person not to interrupt or argue, even if you disagree with what is being said. Both of you will get to tell your side of the story and get to express any concerns you may have. I'm trying to find out how each of you individually looked at the arrangement of the house, what your subjective understanding was. That way, we can weigh the risks of litigation and consider how a court would handle this. Okay? SM: Okay. KM: Yeah. MT: Let's start with you, Sara. As you probably know, the deed for the house was made out to you and Kevin "as joint tenants with right of survivorship." What did that language mean to you? SM: Um . . . I'm having trouble separating what I know about it now from what I knew about it then. I'm pretty sure I've thought of it the same way all along. I think it means that if one of us dies, the house goes to the other one automatically, without the hassle of having it be in a will and go through court. MT: Did it mean anything about proportionate shares, like who owned what percentage while you were still alive? SM: Not to me, no. The real estate agent filled it in that way, and I remember the important thing to me being that we each wanted the other one to have the house if anything should happen to us. I know nothing about probate since I've never experienced that before. But because of Kevin's experiences with his inheritance, he wanted to avoid lawyers and litigation as much as possible. We don't even have a will because Kevin says we don't need one. MT: Okay. Did you and Kevin have an understanding about that, about who owned how much? SM: I certainly understood that we couldn't have gotten a house without his grandmother's money. Not such a nice one, at least, and not as soon. But we've paid thousands of dollars of interest since then. Our mortgage is at 6%, and you know how you are paying all interest at first. MT: And have you spent any other money on the house? SM: Sure. We redid the kitchen at one point, and there's been minor stuff. I added it up the other day. We've been paying about $1,400 monthly for mortgage, taxes, and insurance, so about $180,000. And we've put at least another $40,000 into fixing the house. We had to do some stuff, and other things to make the home look nicer. KM: Could I say something here? MT: Of course. KM: I know a lot of money has gone into the house from our salaries. I don't have any problem with that, because we will get that money back when we sell it. But I think we're losing sight of the fact that I looked at this as an investment. I took my money out of a savings account where it was earning 3.5% and put it into what we both knew was a nice piece of real estate that we couldn't have afforded otherwise. That was my decision, and I know Sara looked at it that way at the time because we had always treated that as my money. Fast forward. All of a sudden, it's her money. SM: I'm not saying that it wasn't your money. You're putting words in my mouth. I'm just saying that after all this time, $60,000 looks insignificant next to the $230,000 plus we've put together. At the time, you said one thing, and now you are saying something else. KM: Well, it wasn't insignificant when it was the only way to buy the house. MT: Let me get something straight here. Did the two of you have an agreement that Kevin's $60,000 was to be treated as an investment of his separate money? KM: I would say yes. SM: I don't remember a specific agreement, no. But I do know that I thought of it as his money and felt it was his decision about whether to do it or not. KM: Don't you remember discussing the investment potential and the fact that housing prices were going up? SM: Yes, but I also thought we would be together for the rest of our lives in those days. I wasn't thinking about who would own how much of the house once we bought it. Besides, who buys a house without considering it as an investment? No one buys a home with the idea of losing money. KM: Exactly. I was preparing for our financial future, but now all that has changed. SM: Well, I was more concerned about having a home for the family. MT: Okay, let's not lose focus. Is there anything in writing besides the documents you brought today related to your purchase of the house or Kevin's investment in it? SM: Not that I know of. KM: No, I don't think so. MT: Based on what you've told me, it doesn't sound like there was an agreement when the deed was signed, but at least both of you agree that the $60,000 was originally separate property or pre-marital funds. Given that fact, what do you think should be done with the proceeds of the house? Sara? SM: I can understand how Kevin would want to get his $60,000 back, and I think I'd even be willing to agree to a reasonable interest rate if we could think of a fair way to set that. He could have that off the top, and then we should divide the rest. What I don't think is fair is that he gets two-thirds of everything plus the other $10,000. MT: Is that what you want, Kevin? KM: Yeah, especially if I'm going to wait for years to get it. I figure I paid for at least one-third of the house, and we have been paying off the other two-thirds since. I could have been greedy, kept the money in a separate account, never touched it, and we could have rented instead, and in the meantime, the money continues to grow with interest. And from what I've seen online, Sara wouldn't be entitled to that money. MT: That's not necessarily true, but what is your theory on the $20,000? KM: It was my money, I didn't have to put it in, and I saved us a lot of interest that we'd have had to pay if we had gotten a larger mortgage or HELOC. It seems it would be fairer if I got that back with the interest I was earning on my savings account. MT: Let me make a rough calculation. Sixty thousand dollars at 3.5% will be a little less than $7,000 in interest, so it does make some difference. The goal of having Kevin live in the neighborhood could be accomplished by refinancing the house and using the funds as a down payment on a place for him. On the other hand, it might make sense to keep the payments on the house low and have Kevin rent an apartment. KM: That is worth considering, just so long as I get to live in the neighborhood. MT: Sara, if you're serious about paying interest, the two of you aren't that far apart, depending on the house's value. SM: Well, I am serious. I think that's fair. For some reason, I don't feel that way about the $20,000, but I'm willing to talk about that some more. MT: Okay, so we're moving in a positive direction. I'll prepare a letter focusing on the issues so you can come to a solution since I know this can't be resolved today. Once you discuss it, we can meet again to discuss any changes, or hopefully, an agreement has been reached, and it's just a matter of me preparing the agreement for both of you to sign. If not, we can start making proposals as well. KM: Thank you. SM: Yes, thank you. We appreciate it. MT: You're both welcome. The letter will cover all the angles and issues discussed today. SM: Great. Sounds good to me. KM: I agree.