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One of the biggest issues in a California divorce concerns property division — and who gets what. Although California is what’s known as a “community property” state, property division is rarely simple. Even though the law generally specifies that property acquired during the course of a marriage is divided equally, a transmutation agreement can change how property is characterized and distributed.
California is a community property state. This means that any property or assets acquired during the marriage are considered to be community property and jointly owned by both spouses — regardless of whose name is on the title or how long the marriage lasted. In contrast, property acquired by either spouse before the date of the marriage is considered separate property and belongs to the original owner. Only community property is subject to division in a California divorce.
There is also a third category of property in California divorces: commingled property. Commingled property is neither marital property nor separate property. Rather, commingling occurs when a portion of an asset acquired by a spouse before marriage is mixed with property that was acquired after the marriage.
Litigation isn’t always needed when it comes to dividing property in a divorce. Spouses are free to settle the issue on their own outside of court. But if the parties are unable to reach an agreement, a judge will determine the outcome and divide the community property in a way deemed fair and equitable.
Property division in divorce can become complex when property is transmuted. “Transmutation” means to change the form of a certain property or asset. Not to be confused with “commingling” — which refers to mixing separate and marital property — transmutation changes the property’s actual characterization for the purpose of dividing it in divorce.
When property is transmuted, a spouse effectively waives their right to whatever interest they may have had in the property. Although spouses are free to transmute whatever real or personal property they wish during the course of their marriage, with or without consideration, a transmutation agreement must be in writing to be valid and enforceable.
A transmutation agreement is similar to a prenuptial agreement in that it allows a married couple to circumvent California’s community property laws and determine such issues for themselves. A transmutation agreement allows spouses to change the character of community or separate property — as well as the status of ownership.
A transmutation agreement can accomplish the following:
Importantly, transmutation agreements can satisfy several critical needs. As an initial matter, they can allow spouses to avoid lengthy and costly divorce proceedings in the event the marriage does not work out. These agreements can also be used to reduce the tax burden of certain properties and assets. They may also help to establish evidence of ownership for estate planning purposes or in cases involving an inheritance.
Before 1985, spouses could transmute property by entering into a verbal agreement. This led to many property ownership contests in divorce being based on “he said, she said” arguments. Accordingly, California’s legislature ultimately passed a law outlining the requirements that must be met in order for a transmutation agreement to be legally binding and enforceable — these requirements are covered in California Family Code §§ 850-853.
Pursuant to California Family Code § 851, transmutations of property are subject to the laws against fraudulent transfers. In other words, it is illegal for a person to transmute property to divest their spouse, a creditor, or another party from their lawful right to the property at issue.
California Family Code § 852 sets forth the specific requirements for transmutation agreements to be legally enforceable. Specifically, a transmutation agreement must be in writing and include an express declaration regarding the intent to transfer property ownership status. The spouse whose property interest is being removed must consent to the agreement and sign it. Notably, there are certain types of property for which written transmutation agreements are not required. Gifts of clothing, wearable apparel, jewelry, or other articles of a personal nature are exempt from the writing requirement.
In addition, even if a provision is included in a last will and testament concerning transmutation, spouses must still enter into a separate transmutation agreement for the purposes of dividing property when a marriage has been dissolved. A statement in a will cannot be admitted as evidence of transmutation of property in a divorce proceeding under Family Code § 853.
If you’re considering entering into a transmutation agreement with your spouse regarding your community property, it’s essential to have a knowledgeable divorce attorney by your side who can ensure your interests are protected. With more than 20 years of experience, the Law Offices of Rick D. Banks provides clients with experienced counsel and skillful representation for a wide variety of matrimonial matters. To schedule a no obligation consultation, call (559)222-4891.