Transmutation of Property in Divorce Cases
Transmutation of Property During Marriage – Property Division at Divorce
Upon a divorce case, the court will have the task of characterizing property as community or separate, dividing marital property and confirming a party’s separate property to that party. Generally, community or marital property are assets and debts that are acquired during marriage by either party that is not separate property. Separate property are assets and debts acquired before marriage, after the date of separation, by gift, bequest, devise, inheritance, and accumulations, appreciation or traceable property derived from the separate asset.
The characterization of property in a divorce or legal separation case is extremely important. The family court in Orange County does not have the ability to divide separate property between the parties – it is automatically separate and the court does not have the power under the law to give separate property of one spouse to the other spouse. However, the burden is generally on the spouse claiming separate property to prove the separate nature. It becomes complicated when an asset or debt is not clearly separate or community. For example, when community money is used to pay an obligation associated with a separate asset, such as a home mortgage, the community will acquire an ownership interest in the separate asset.
Types of Property that may be Transmuted
It becomes further complicated when a spouse claims that property has been transmuted from one type of property to another. Transmutation means to change form, and in the context of California, Orange County divorce cases, transmutation means that property has changed form or character in one of the following ways:
- Property changed from community property to separate property
- Property changed from separate property to community property; or
- Property changed from one party’s separate property to the other party’s separate property. (See Fam. Code 850)
Statute of Frauds – Fraudulent Transfers in Orange County
Marital partners are free to transmute property between themselves during marriage. However, there are certain rules that apply to such transfers in order for them to be valid transmutations. Cal. Fam. Code 851 states simply that transmutations of property are subject to the laws prohibiting fraudulent transfers. This means that a person can transmute the character of item of marital or separate property in order to divest another person or creditor from their lawful right to that property. For example, if a spouse transfers a bank account to the name of a third party in order to hide the account from his or her spouse, such a transfer is illegal and will be set aside by the Orange County family law judge.
When a Transmutation is Invalid
The California Family Code Section 852 provides guidance on when a transmutation is not valid. Section 852 reads:
- (a) 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.
- (b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded.
- (c) This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage.
- (d) Nothing in this section affects the law governing characterization of property in which separate property and community property are commingled or otherwise combined.
- Subsection (e) provides that transmutations occurring prior to 1985 are to be governed by the law that existed before 1985, which further complicates the analysis for transfers that occurred significantly in the past.
What is an Express Declaration?
Section 852(a) states that the spouse giving up his or her rights to property must expressly acknowledge in a declaration that they join in, consent or accept the transmutation. What does this mean? It means that a spouse giving up something must really understand that they are giving up a property right. The express declaration must contain clear language that the spouse understands they have a right to the property and that they are knowing giving up that right. In the case of a transmutation of real property, for example, the quitclaim or other deed will usually contain the express declaration right on the face of the deed so it is clearly noticeable and clear.
Do Gifts Between Spouses Count as Transmutations?
No. Section 852(c) states that gifts between spouses of clothing, jewelry, etc. is valid without containing an express declaration, so long as the gift is not “substantial in value” considering the circumstances of the parties’ marriage. That means that there is no transmutation when the value of the gift is not significant when compared to the parties’ other assets and debts. This is a purely subjective call that will be made by the family court judicial officer in your Orange County divorce case.
If a Transmutation is made and Contains an Express Declaration, is it Automatically Valid?
No. California transmutation law is created to ensure that spouses are protected from the other spouse. A spouse has a fiduciary duty to the other spouse, which means that they are not permitted to take advantage of their spouse in property dealings. When an asset is transmuted during marriage without consideration (i.e. without compensation for the fair value), the transmutation is presumed invalid. See Marriage of Haines.
If Property is Designated as Separate or Community in a Will or Trust, does that Transmute the Character?
No. Family Code section 853 states that simply designating property in a will or trust as a certain character does not effectuate a valid transmutation. Commonly, people create wills or “non-probate” transfers (i.e. through a trust) and list their assets within the document. Often, estate planning attorneys will list the property on a Schedule in a trust and then state the “character” of the property. This is often done incorrectly. Fortunately, Section 853 ensures that the “real” character of property is preserved despite an incorrect designation in an estate planning document. As mentioned above, property could be “mixed” in character and thus a designation as either “separate” or “community” in a will or revocable trust would be incorrect.
Dealing with property division during divorce can be extremely difficult. Our attorneys have years of relevant experience in divorce cases and we are here to help. Call or email us today to schedule your free consultation with one of our divorce lawyers in Irvine.