How to transfer property to your spouse correctly

Memo

To: General Consumer
From: Lindsey Green, Esq.

re: - Transmutation in Family Law Cases

I. Characterization of Property

  1. Community Property- General Presumption- Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during marriage while domiciled in this state is community property.
  2. Separate Property-Property owned before marriage or after the date of separation or property acquired during the marriage via gift, bequest, devise, or descent, including rents, issues and profits thereof.

II. Fiduciary Relationship Among Spouses-Duty of Good Faith and Fair Dealing

  1. In transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other imposing a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.

III. Transmutation

  1. During marriage and before commencement of dissolution actions, spouses may agree to change the status of any or all of their property converting separate property into community or community property into separate property or separate property of one to separate property of the other.
  2. A transmutation of real or personal property is not valid unless made in writing by an express declaration.
  3. An express declaration must contain language which expressly states that a change in the characterization or ownership of the property is being made-

IV. Examples of Transmutation

  1. Stocks-
  2. Real Estate-
    1. A grant deed transferring property;
    2. Spouse that benefited in real estate transaction must show taken advantage spouse said transfer was freely and voluntarily made with full knowledge of all the facts and with a complete understanding of the effect of a transfer from his separate property to community property.
    3. Was real estate transaction as to giving one spouse an advantage and thus gave rise to a presumption of undue influence of which the other spouse failed to rebut.
    4. One spouse promises to add other spouse onto title later with the real estate transaction. The promising spouse fails to do so and that breach of a promise is undue influence not sustaining the transfer in a dissolution case.
    5. Real estate cases can go both ways- transmutation or no transmutation and thus factually important to demonstrate whether freely understood with entire legal effect of transfer and whether any promises were made to add spouse back on title.
  3. Cars- A DMV registration may not satisfy.
  4. Estate Planning Purposes-A trust transfer agreement can create a transmutation from separate property to community property.
    1. Practice Pointer- Each party their own family law lawyer to advise them on the effect of transmutation either from community to separate, separate to community or separate to separate before execution of said estate planning documents with estate planning attorney.

IV. Presumption of Undue Influence

  1. A transmutation that unfairly advantages one spouse over the other is presumed to have been induced by undue influence. The advantaged party thus has the burden of overcoming this presumption that the fiduciary duties were not violated; that the transaction was freely consummated with full knowledge and facts of complete understanding of the effect of the transfer.
  2. Coercion with threats from one spouse to the other when executing a transmutation agreement will not overcome presumption of undue influence.

V. Lessons Learned-

  1. Transmutations are fact sensitive- express declarations are pretty clear.
  2. Transmutations are fact sensitive- coercion and duress are obvious if analyzed and brought out in a transmutation agreement.
  3. Transmutations are fact sensitive in real estate transactions- Does advantaged spouse understand full legal effect of transmutation. If not then enforcement is challenging.
  4. Transmutations are dangerous for estate planning lawyers- send in your family law lawyer always.
  5. Transmutations can be done in post nuptial agreements-