In a divorce case, Watts charges are a charge against a spouse's share of community property made to reimburse the community for the value of his or her exclusive use of the property after separation. Epstein credits are reimbursement claims against the community property for the payment of a community debt with separate assets.
The following is a local court rule dealing with Watts charges and Epstein credits:
Epstein/Watts Credits; Tracing and Other Accounting Based Claims.
(a) Basic Policy
a. It is the policy of the Court to encourage litigants to pay their bills by giving them appropriate Epstein credits for payment on community debt from separate property sources.
b. Epstein issues should be raised, discussed and resolved at the earliest possible time in the litigation process, if at all possible no later than the time when temporary support is set. Counsel who permit Epstein credit issues to go unresolved until trial create an additional complex issue for settlement and trial, expose his/her client to an unpredictable adverse trial decision, and expose the client to concomitant increases in attorney and other litigation fees.
c. It is good practice to include a statement in the temporary support order which provides whether or not a party will receive credit in the property division at trial for separate property payments on listed community debts.
d. The party claiming Epstein credits has the burden of proof regarding the community nature of the obligation, the balance on date of separation, the post-separation payment and the separate property source of the payment.
e. If a support order has been made, and the order or the stipulation on which the order is based is silent on the subject, the court will presume that the payments on Epstein type obligations are not in lieu of support. Said presumption is subject to rebuttal on an appropriate showing.
f. The Court will make itself available for a voluntary settlement conference to assist in the early resolution of Epstein and Watts disputes when reasonable efforts by counsel or self-represented parties do not produce agreement.
(b) Presentation of Epstein Credit Claims.
a. Epstein claims shall be presented on declaration at settlement conference (or at trial if there has been no settlement conference) by the claimant party. The declaration shall set forth all facts supporting the community nature of the obligation, the date of separation balance on the obligation, the post-separation payments made and the separate property source of the payment. Copies of all documents which support the claim shall be attached to the declaration. Documents not so attached shall not be permitted in evidence at trial except in extraordinary cases. At trial, the declaration will normally be received in evidence in lieu of the claimant's direct testimony on this issue and shall be subject to cross-examination and appropriate evidentiary objections.
The above-mentioned declaration will be expected by the court prior to the final settlement conference and, if agreement is not reached on the Epstein issue at that settlement conference, will be used at trial.
b. Declarations and supporting exhibits shall be served on the opposing party at least five (5) court days before the settlement conference at which they will be used or at least five (5) days before trial if they have not been used in a prior settlement conference.
(c) Watts Claims
a. Claims for Watts charges, for reimbursement to the community for post-separation use of community assets, are generally disfavored by the court unless the party seeking credit has given prior written notice to the other party of the intent to seek such a credit. Such a notice will forestall the claim at trial that reimbursement of the Watts charge was not within the reasonable expectations of the parties. Claims will ordinarily be considered retroactive only to the date of such actual written notice of the claim. For this reason, notice should be given as early as possible in the litigation. In the absence of notice the court will usually conclude that the making and granting of Watts charge claims are not with the reasonable expectations of the parties. Early settlement of Watts credit issues benefit the parties for the same reasons set forth, above, under Epstein claims.
b. Watts claims shall be presented by declaration and admitted into evidence in a manner similar to Epstein claims (see above). The court will expect that among the documents attached to said declarations will be a written appraisal of the fair rental value of the property (if fair rental value is relevant to the claim).