When you divorce in California you may wonder what happens to your property. Who gets the house? What about the car? Can you keep your entire baseball card collection that may be worth hundreds of dollars, or will you have to split that with your soon-to-be ex-spouse? The answer is that it depends.
Status of Marital Property in California
California is what is called a community property state. This means that (most) property acquired during a marriage belongs equally to both spouses. If you decide to get a divorce, community property is divided evenly. This may require selling assets and splitting the proceeds, or agreeing to take give up one piece of property in favor of another that is of equal value.
Say, for example, you and your spouse have a car (that you share) and a timeshare in Southern California that is worth about as much as the car. When you divorce, you could do two things. First, you could either sell both the car and the timeshare and split the proceeds. Or, alternatively, you could agree that one spouse will take the car and the other will get the timeshare.
Transmutation Agreements to Shift Status of Property Ownership
You can either wait until the divorce to transfer ownership of property or you can execute what is known as a transmutation agreement. Transmutation agreements are essentially the equivalent of a prenuptial agreement that is done after you get married.
Through a transmutation agreement status of property ownership – whether community or separate – is changed. As we know, community property is generally divided equally upon divorce. Separate property – property which a spouse owned prior to marriage or was specifically given through a gift or bequest – typically remains theirs, and theirs alone, after a divorce. For example, that baseball collection you were worried about? If it was yours before the marriage it will continue to be yours after the marriage ends.
A couple can use a transmutation agreement to accomplish three things:
- Transfer community property to the separate property of one spouse;
- Transfer the separate property of one spouse to community property; or
- Transfer the separate property of one spouse to the separate property of the other spouse.
Why Transfer or Shift the Ownership of Property?
Transmutation agreements have many benefits. These include:
- Clearly identifying ownership, making a divorce or sale less complicated.
- Obtaining favorable tax treatment upon death. Jointly owned property will not be subject to certain inheritance and estate taxes.
- Establishing evidence of ownership.
- Eligibility for loans and mortgages.
Requirements for Creating a Binding Transmutation Agreement in California
Years ago, there were not standard requirements for transmutation agreements. This led to significant problems when determining the ownership status of property of divorcing couples. Since there was no prohibition on oral agreements, many battles came down to “he said, she said” arguments, often based on nothing more than the beliefs and desires of bitter opponents. In an effort to make transmutation agreements clear and transparent, California passed legislation outlining requirements for creating binding transmutation agreements.
According to California Family Code Section 852, valid, enforceable, and binding transmutation agreements must be “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.” So, transmutation agreements must:
- Be in writing;
- Include an express declaration of the intention to transfer the status of property ownership; and
- Signed by the spouse whose interest in the property is being reduced or removed.
Abuse of Transmutation Agreements
The formalization of transmutation agreements has helped to reduce the number of disputes over the status of property ownership. However, there are times when a transmutation agreement may be set aside by the court. There are two ways a transmutation agreement may be set aside.
- A divorcing spouse may contest the validity and enforceability of a transmutation agreement if he or she believes that the agreement was obtained through undue influence, coercion, duress, or deceit;
- A court may strike the transmutation agreement if it appears as though one spouse gained an economic advantage at the expense of the other spouse.
If a transmutation agreement is contested the spouse receiving the economic advantage (i.e., the property) must overcome the presumption that the transmutation agreement was the result of undue influence. If the spouse fails to overcome this presumption the transmutation agreement may be set aside.
- The transfer was made freely and voluntarily by the spouse reducing their economic advantage;
- The transfer was made with full knowledge of all relevant factors; and
- The transfer was made with a complete understanding of the effect and purpose of the transfer.
Experienced California Family Law Attorneys
If you are interested in learning more about transmutation agreements or property division you should contact our experienced California family law attorneys today. We can review any property you and your spouse own and help you understand the pros and cons of altering the status of property ownership.