THURMAN'S TIPS - VALID AND INVALID TRANSMUTATIONS:

Family Code Section 852

A "transmutation" is an interspousal transaction by which the character of personal or real property is changed in one of three ways: from separate to community, from community to separate, and from the separate property of one spouse to the separate property of the other spouse (or RDP) [see Family Code section 850].

This area of the law is woefully complex and critically important, in part because most transmutations are entirely inadvertent in the sense that parties rarely intend to give up or waive an interest in property they owned before marriage. But, in many common situations, that is exactly what occurs. An illustration of a typical situation is where a wife (or husband) owns a home prior to marriage. Legal title is held in her name alone. During the marriage, it seems advantageous to refinance the mortgage, especially today when interest rates are at historic lows. Possibly the husband's signature is needed on the loan in order to qualify. At the close of the refinance escrow, the escrow or title officer includes as one of the many documents that wife must sign an interspousal transfer deed, a quitclaim, or a grant deed which recites that the property is being transferring from wife to husband and wife, as joint tenants or as community property. Or maybe there is no refinance, but instead, in the course of estate planning or discussions about "what happens when I die," the husband's name is added to title as a joint tenant to ensure that he inherits the property with the minimum of legal expense. In either situation, the wife may have no intention whatsoever to give up an interest in her separate property, certainly at least not for purposes of a divorce, but in both the result is that a transmutation has occurred such that the home is no longer wife's separate property but instead it belongs to the community.

Family Code § 852 addresses the formalities of what is required in order to create a valid and enforceable transmutation. Prior to 1985 spouses could orally transmute property, which meant that one spouse could claim that the other promised them an ownership interest in some asset during "pillow talk," for instance. This inevitably led to huge and unseemly liar's contests.

Section 852 was enacted to overrule prior law to require that transmutations be supported and established by some kind of written "express declaration" that is "joined in, consented to, or accepted" by the spouse whose prior interest in the property was "adversely affected." It therefore typically applies to real property and the kinds of personal property for which title documents exist.

However, the transmutation formality rules are not necessarily limited to title situations - subjection (c) addresses interspousal gifts of "clothing, wearing apparel, jewelry, or other tangible articles of a personal nature...." Family Code section 852(c) requires that gifts given during marriage (i.e., not that two karat engagement ring ) also require an express declaration signed by the party who is financially disadvantaged unless the value of the gift "is not substantial ... taking into account the circumstances of the marriage." Hence, in order for a gift to be a valid transmutation in the absence of a writing saying that was the party's intent or having that effect, courts must consider its value in light of all the parties' circumstances. The most obvious circumstance would be a gift the value of which was minimal in light of a party's earnings or the over-all worth of the community estate.

Keep in mind that in transmutations where one spouse obtains an advantage at the expense of the economic interests of the other, there is a presumption that the transmutation resulted from the exercise of undue influence. Transmutations can be set aside or voided unless that presumption can be overcome.

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CALIFORNIA FAMILY CODE

CHARACTERIZATION OF MARITAL PROPERTY

TRANSMUTATION OF PROPERTY

Family Code Section 852

(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.

(e) This section does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation shall continue to apply.