TRANSFERING PROPERTY BETWEEN SPOUSES – “TRANSMUTATION”
At certain points in a marriage, you may find yourself needing to change the characterization of property; that is to say, you may need to change separate property of one person to community property, or community property to separate property, or even one spouse’s separate property to another spouse’s separate property. Pursuant to California Family Code Section 850, you can do this “by agreement or transfer, with or without consideration.” This is called a “transmutation.” In this context, “consideration” means anything of value.
California Family Code Section 852(a) states, “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.” That is to say, this has to be a transfer that is knowing and voluntary on the part of the person who is losing something when the change in ownership is made, and that change has to be in writing.
Two recent cases from two separate appellate divisions have looked at what constitutes an “express declaration” in writing sufficient to change ownership of property. In re Marriage of Begian (2018) 31 Cal.App.5th 506 was heard in the Second Appellate District and looked at trust transfer deeds. In re Marriage of Kushesh & Kushesh-Kaviani (2018) 27 Cal.App.5th 449 was heard in the Fourth Appellate District and looked at interspousal transfer grant deeds.
In re Marriage of Begian (2018) 31 Cal.App.5th 506 had a couple married for decades, with the Wife receiving an interest in real estate from her mother. At some point Wife and Wife’s Mother decide to also give Husband an interest in the real estate, with Wife, Husband and Wife’s Mother all as Joint Tenants. Then, a few years after that, Wife, Husband and Wife’s Mother all signed a “Trust Transfer Deed,” which stated, “For no consideration, Grantors [Wife’s Mother], and [Wife] and [Husband], Wife and Husband, all as joint tenants, hereby grant to [Wife] the following real property …. This is a bonafide gift and the grantor received nothing in return R & T 11911.”
Because a transmutation can be abused, and the disadvantaged spouse can potentially lose everything due to that transmutation, the Courts require strict adherence to formalities to ensure that a party does not accidentally transmute property. Though the Courts do not require any particular language, the writing must reflect an unambiguous change in character or ownership of property. An instrument is ambiguous if the written language is fairly susceptible of two or more constructions.
In this case, the wife, of course, claimed that the real property was her separate property. In response, Husband said that because the document was titled “Trust Transfer Deed,” it is ambiguous as to whether or not Husband meant to give his ownership interest to Wife, or for Wife to merely hold ownership in trust. It is also ambiguous as to what precise interest was being granted by Husband to Wife. Though the Trust Transfer Deed used the word “grant” which historically meant transferring an interest in real property, the Trust Transfer Deed does not specify what interest was being transferred. The Court further said that the title of the “Trust Transfer Deed” compounded the ambiguity. Furthermore, Wife found no refuge in the phrase “bonafide gift” because it is not the act of giving that satisfies California Family Code Section 852, but the unambiguous statement of what interest was being transferred.
In contrast, the couple in In re Marriage of Kushesh & Kushesh-Kaviani (2018) 27 Cal.App.5th 449 were only married for about a year. During that short marriage, the parties purchased a condominium. The deed was made out to the Wife only as a “Married Woman as her sole and separate property.” Further, Husband signed an Interspousal Transfer Grant Deed, which said, “For a valuable consideration, receipt of which is hereby acknowledged, [Husband], spouse of Grantee herein hereby grants to: [Wife], a married woman as her sole and separate property the real property in the city of Laguna Niguel ….”
Again, Wife claimed that the condo was her separate property. This time, the Court agreed, saying that there were enough “magic words” to make this into an unambiguous change in character or ownership of property. The Court, contrary to In re Marriage of Begian, did consider the word “grant” as meaning a transfer of interest in real property. But more importantly, the Court considered the use of the phrase “as her sole and separate property” to “inescapably pointing the reader in the direction of a change in the marital characterization of the property.”
So, it can be seen from these two cases that it is very important how any transfer of property is written. While there is no specific language that guarantees that the Court will decide that there has been a transmutation, there are certain “magic words” which can heavily weigh in favor of a transmutation and lack of such language can result in no transfer at all.