Transmutation of assets and debts in a California divorce. One of the most difficult aspects facing divorcing couples, aside from issues of child support and child visitation, is the issue of division of property. Some of the most contentious aspects of divorces stem from the identification of separate vs. community property. Since California is a community property law state, the identification of property as either separate or community is critical.
Separate property is defined as any property that a spouse owned prior to marriage, received by gift or inheritance during the marriage, or acquired after the date of separation. Community property is presumed to be any property that was acquired by the couple during the marriage that is not a separate property gift or inheritance. Because California is a community property state, if the parties go to trial with no agreement as to the division of the community property, the court only has the authority to divide the community property equally between the parties on a 50/50 basis. The parties can agree to divide the community property in an unequal division, but their agreement must be in writing, signed by both parties and filed with the court. The separate property of each spouse remains that party’s separate property and will not be divided. For this reason, whether the transmutation of a property is found to have occurred during the marriage is critical to the division of property.
In divorce proceedings, under California law, the transmutation of property occurs when the character of the personal or real property at issue has been “transmuted” or changed from either separate property to community property, or vise versa. See Family Code §850-853.
Why is This Important to Know?
The issue of transmutation of property is important to know for two very critical reasons. First, transmutation may occur unintentionally, without the parties knowing it; and second, it may not seem important to the parties unless they are facing divorce and then it may be too late to do anything about it.
An Example of the Transmutation of Real Property
Say the husband purchases a piece of income property prior to marriage. After marriage, wanting to take advantage of a lower interest rate, he decides to refinance the property. Both husband and wife sign the loan documents in order for the couple to qualify for the refinanced loan. At the end of the refinance transaction, husband signs a deed transferring title to the property from himself to both he and his wife. Husband has effectively transmuted his separate interest in the real property to the community. This is only one example of how separate property can be transmuted into community property.
Family Code §852 – Requirement of a Written Declaration
Before 1985, married couples could effectively transmute their separate property to community property by “words” alone. This led to major difficulties for the court in its efforts to determine who said what and when, or who was telling the truth about the transmutation and who was not.
After the enactment of Family Code §852, the law required that any attempts to transmute the character of any property during the course of a marriage must be evidenced by a writing and signed by the party to be charged. For more information on this issue, please consult a family law attorney. Continue reading →