How Can California Real Property be Transmuted Between Spouses?

This question was answered in the recent case of Marriage of Wozniak that was an appeal from a judgment in a marital dissolution action between Anna and Grzegorz Wozniak.

Anna challenged the trial court’s characterization of their residence in La Mesa as the parties’ community property which meant that both spouses retained their 50% interest.

The record demonstrated that the property was originally owned by Anna as her separate property, but that at some point prior to 2006, Anna transmuted this property into community property.

In 2006, Grzegorz prepared and executed an interspousal transfer deed, which, if effective, would have passed his community property interest in the residence to Anna.

At trial, the parties disputed Anna’s response to Grzegorz’s attempted delivery of the interspousal transfer deed; Grzegorz testified that Anna rejected the deed, and Anna testified that she was surprised when Grzegorz presented the executed deed to her but that she ultimately took possession of it.

Over the next six years, the deed was not recorded and both parties appeared to agree that it remained in the martial residence.

In 2012, after an incident in which a protective order was granted in favor of Grzegorz and against Anna, Anna took possession of the deed and recorded it.

At the conclusion of the trial, the trial court stated in its findings that it found Grzegorz’s testimony about the deed to be credible and concluded that Anna had rejected the deed in 2006, and that as a result, no transmutation had been consummated between the parties at that time.

The court further found that when Anna recorded the deed in 2012, Grzegorz no longer had the intent to transmute his community property interest to Anna. The trial court ultimately concluded that the property at issue was community property.

On appeal, the Court of Appeal concluded that the trial court did not err in its analysis of the law regarding the transmutation of property between spouses and that the court’s findings were supported by substantial evidence.

The characterization of property involves the process of classifying property as separate, community, or quasi-community.

As a general rule, property that is acquired prior to marriage is the separate property of the acquiring spouse. (Family Code § 770(a)(1).)  Conversely, all property acquired during marriage is presumptively community property. (Family Code § 760.)

However, spouses may agree to change the status of any or all of their property through a property transmutation. A transmutation is an interspousal transaction or agreement that works a change in the character of the property.

Family Code § 850 describes the various transmutations and spouses may:

(a) Transmute community property to separate property of either spouse.

(b) Transmute separate property of either spouse to community property.

(c) Transmute separate property of one spouse to separate property of the other spouse.

A transmutation of real or personal property is not valid unless made in writing by an express declaration that it is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.

The express declaration language requires a writing that on its face coveys a clear and unambiguous expression of intent to transfer an interest in the property, independent of extrinsic evidence.

The writing must contain language which expressly states that the characterization or ownership of the property is being changed.

In view of the fiduciary relationship between spouses, when an interspousal transaction advantages one spouse, the law, from considerations of public policy, presumes such transactions to have been induced by undue influence.

Thus, the broad question whether a valid transmutation of property has taken place depends not only on compliance with the provisions of Section 852 but also upon compliance with rules governing fiduciary relationships.

LESSONS:

1.         For an enforceable transmutation of property between spouses, an “agreement” to effectuate a transmutation of one spouse’s separate property into community property should be used that on its face coveys a clear and unambiguous expression of intent to transfer an interest in the property, independent of extrinsic evidence.

2.         The writing must contain language which expressly states that the characterization or ownership of the property is being changed.

3.         Because of the fiduciary relationship between spouses, when an interspousal transaction advantages one spouse, the law, from considerations of public policy, presumes such transactions to have been induced by undue influence.

4.         A post-marital agreement between spouses is an effective written agreement that is combined with the appropriate grant deed.