Watts charges or Watts Credits refer to a holding from the case of Marriage of Watts. That case holds that a party may be charged with reimbursing the community for the reasonable value of the use of community property by a party post-separation. To prove a Watts charge, a spouse needs to show evidence of the value of an asset, such as a property’s monthly rental value.
The most common application of this occurs when one spouse continued to live in the marital home, though it can occur in other circumstances, such as the use of a vehicle. Watts Charges are, in many ways, the opposite side of Epstein credits, and the two often both apply in cases. If someone in a case is seeking Watt’s Charges, the next question should be “are Epstein Credits also at issue?” When both are present, we view them as Jeffries Credits/Charges.
Exceptions to Watts Charges
There are exceptions to Watts charges, and they are discretionary with the Court. A court can decide not to order them simply because it would be “inequitable” to do so. A common exception is when one spouse is paying the carrying costs of the marital home as part of a support order, or that consideration of the use of the home was considered in a support order.
It has been suggested in several cases, that Courts should address Watts Charges early in a case, ideally as part of a temporary support order. The reason is that it can take months or years for a case to come to trial, and Watts Charges can be substantial by that time.
It’s a good idea to send a notice
While not technically required, it is a good idea for a party seeking Watt’s charges to give written notice to the other party of the intent to seek credit for post-separation use of community assets, and this should be done as soon as possible. This helps rebut the argument that should give notice to another party of the intent of a Watts charge as soon as possible in litigation. Failure to give notice can lead to the courts concluding that the Watts charge claim is not equitable.
What is the Fair Market Rental Value (FMRV)
Experts are generally required to determine the FMRV for the asset. One of the considerations is whether or not the other party actually had full exclusive use of the asset. Is the other party getting mail at the home? Are they storing items there? Do they come and go as they please? The mere fact that a party is not living there does not, necessarily, mean the other party has exclusive use of the asset.
Let’s look at an example of how Watts Charges work:
At separation, Party A continues to reside in the marital home, which has a fair market rental value of $5,000 per month. Party A resides in the home, thorough trial, a total of 14 months. Party B can seek Watts Charges of $70,000 payable to the community. As a practical result, Party A would owe Party B $35,000.
When Watts Charges are ordered, it is common for them to be offset by Epstein Credits.
Using the above example, let’s assume Party A was paying the Mortgage, Property Taxes, and Insurance totaling $4,500 per month. She would have a claim for Epstein credits of $4,500 per month, for a total of $63,000. The difference between the Epstein credits and Watts Credits is $7,000. As this is a community expense, Party A would have to pay ½ to Party B, or $3,500.