Before the issue of what a transmutation is and how a quit claim or interspousal transfer deeds affect real property, there must be an understanding of community property. Simply put, anything acquired during marriage, whether they are debts or assets are community property with the general exception, of anything inherited or bestowed as gifts.
One legal concept used to rebut the presumption of community property for assets attained during marriage is transmutation. This is the process by which the parties change the character of a property from community to separate or vice versa. Transmutations after 1984 require a writing. It must clear that both parties are entering these agreements voluntarily, intelligently and without coercion or undue influence.
To be a valid transmutation for the purposes of a divorce, Family Code (FC) section 852, sets forth what is required in order for the transfer to be enforceable. Section 852 was enacted to require that transmutations be supported and established by some kind of written “express declaration” that is “joined in, consented to, or accepted” by the spouse whose prior interest in the property was adversely affected.
What is express declaration? Section 852 (a) states that the spouse giving up his or her rights to a property must expressly acknowledge in a declaration that they join in, consent or accept the transmutation. What this means is that in order for there to be no undue influence. This express declaration cannot be oral. It must be in writing, clear language that the spouse understands and know they have a right to the property, and knowingly giving up that right.
In order for there to be a transmutation by quitclaim deed as to real property, the deed must contain the express declaration on its face, so it is clearly noticeable and clear. A quit claim deed from two spouses into the name of one spouse with no other language supporting the transfer or stating the property is to be the separate property of the other spouse does not support transmutation.
Some examples of documents can be a post-nuptial agreements and deeds. For a deed not to be set aside, the language on the deed transferring title needs to specifically state that it is the intent of the parties to transfer a spouse’s community property interest to the other spouse as separate property. If such details are included in the deed, then it will likely satisfy the requirement under the law. If not, these financial transactions will be scrutinized very closely and likely be set aside.
Even if there is an express declaration, it is not automatically valid in divorce proceedings. All that it may satisfy is Section 852. But does it satisfy FC section 721 (b)? This code underscores the sanctity and the special standing of marriage, “this confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.” The public recognition that people sometimes tend to abuse trust and take advantage of another person who relies or once relied upon them, is the reason such laws exist.
A spouse has fiduciary duty to the other spouse which means they are not permitted to take advantage of their spouse in property dealings. When an asset is transmuted during marriage without consideration (i.e. without compensation for the fair value), the transmutation is presumed invalid. The spouse claiming validity must rebut the presumption of undue influence.
People in a “fiduciary relationships” are treated under the law as though they are not on equal “footing”—one person (typically the fiscal managing spouse) initially accepts the trust and confidence of the other. Thus, this spouse holds a superior position to exert influence over the dependent party.
These kinds of transactions are always suspect because why would one spouse give up their rights to a property? The seminal case is Marriage of Haines (1995) 33 Cal.App.4TH 277; 29 Cal.Rptr. 673. An appeal arises from the effects of the 1987 quitclaim deed by which wife deeded her interests in the home to her husband. The key question was whether as a result of the quitclaim deed, the residence became husband’s separate property and thereby justified a reimbursement award per Family Code (FC) section 2640?
Evidence Code (EC) section 662 is a common law presumption in favor of title. The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.
FC 721 (b): in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provide in sections 16403, 16404, and 16503 of the Corporations Code, including but not limited to: (1) providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying. (2) rendering upon request, true and full information of things affecting any transaction that concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions (3) accounting to the spouse and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse that concerns the community property.
A presumption of undue influence (proven by preponderance of evidence) arises whenever either party benefits from a transaction to the economic detriment of the other. In order to rebut the presumption, the advantaged spouse must show: transfer was made voluntarily, intelligently with full knowledge of the facts, and complete understanding of the effect of the transfer.
This is an extremely complicated area of the law and fiscally important to both spouses. I am dealing with a case right now and there are more than twenty domestic and real estate properties. The advantaged spouse has an uphill battle, especially in my case, where it is a marriage of over thirty-six years. He must submit evidence, for example, regarding the transfer, timing of the transfer, intentions, and understanding of the spouses at the time of transfer.
But effectively defending against the validity of the transfers of the deeds also require a very skilled attorney. If you have any questions about this area of law, call my office at 310-601-7144 or email me directly at [email protected].
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