California is a community property state. Meaning all property acquired during marriage is presumed to be community property unless acquire through bequest, devise, or gift. Property acquire prior to marriage (or via bequest, devise, or gift during marriage) is that party’s separate property. When spouses file for divorce, they are each entitled to 50% of the community property, and 100% of their separate property. Accordingly, understanding the characterization of the property is very important in a dissolution action.
The character of acquired property can, however, change during marriage through transmutation. To “transmute” property means to change the characterization of the property from community to separate or vis-versa. Family Code section 850 allows for married persons to transmute property and Family Code section 852 sets forth the terms of how to effectuate a valid transmutation.
Since one party will be disadvantaged by a transmutation agreement, in that they will be waiving part or all of their interest in property, the agreement must be express, in writing, signed by the adversely affected party, and must be entered into free of undue influence. The Family Code has a number of specific rules in place to ensure that both parties are fully aware of the agreement they are entering into, and that both parties are freely entering into the agreement.
Family Code section 852(a) explains “a transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” For a writing to satisfy the “express declaration” requirement, it must state on its face that a change in character or ownership of the subject property is being made. See In re Marriage of Benson (2005) 36 Cal.4th 1096, 1100. This does not explicitly require use of the terms “transmutation”, “community property,” or “separate property” in the written agreement. The written agreement must, however, “unambiguously indicate a change in the character or ownership of property.” In re Marriage of Starkman (2005) 129 Cal.App.4th 659, 664.
Further, married persons are subject to Family Code section 721 which “imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.” This is in place to safeguard spouses from being taken advantage of by the confidence in their relationship. When spouses engage in a transaction in which one party is disadvantaged and the other is advantaged, the court presumes there has been undue influence by the advantaged party. The court presumes the advantaged party may have used their position in their confidential relationship to induce the other party into an agreement in which they are disadvantaged.
It is the burden of the advantaged party to prove the absence of undue influence. The presumption of undue influence is rebuttable if the advantaged spouse can establish that the disadvantage spouse acted “freely and voluntarily, with … full knowledge of all the facts, and with a complete understanding of the effect of the transaction.” Lintz v. Lintz (2014) 222 Cal.App.4th 1346, 1353. With respect to a transmutation agreement, the disadvantaged spouse must fully understand that they are agreeing to change the characterization of the property.
Recent case law explained an instance in which one party did not completely understand the implications of the transaction. In In re Marriage of Deluca (2019), Wife was informed by Husband, and believed him, that Husband had received real property through inheritance during their marriage and the real property was thus Husband’s separate property. In fact, Husband had purchased the property during marriage (it is therefore, presumptively community property unless an exception applies). Wife then signed a quitclaim deed, at Husband request, confirming the real property was his sole and separate property. The trial court ruled the real property was husband’s separate property. The Court of Appeal for the Fourth District, however, determined that the quitclaim deed was not a valid transmutation because Wife did not fully understand that the agreement would change the characterization of the property. Wife believed that it was already Husband’s separate property because he told her it was. The Court of Appeal reversed and found the real property to be community.
Do you believe you may have entered into a transmutation agreement during your marriage? Or aren’t sure if it’s valid? Here at Mello & Pickering, LLP we can help develop a strong case for your claims to property acquired during the marriage and your separate property. With our combined 40 years of experience we can help you to ensure that your interests are protected.