When people divorce and divide property, there must be an initial determination of how their property is characterized under the law. The difference between an asset being the separate property of one spouse versus it being a community asset will usually make a significant difference in each parties’ side of the ledger.
A frequent problem in determining property characterization is when the title to the property changed during their marriage. Married people frequently transfer property to one another for a variety of reasons. Sometimes, for example, a spouse will grant joint title to the other spouse, intentionally changing the character of the property from separate to community. Conversely, there are occasions when a spouse will transfer their interest in a jointly owned property to the other spouse, making what was community into the other spouse’s separate property.
In family law, these transfers are called “transmutations,” and the validity of these transactions is often hotly contested during a divorce. Understanding the technical requirements regarding transmutations is essential. Otherwise, the intended transfer may never have happened according to law.
One of the technical requirements that must be met before the transmutation is legally valid was recently addressed in the published opinion, entitled, In re Marriage of Wozniak (2021) 59 Cal.App.5th 120. In Wozniak, the parties disputed the characterization of property that was in La Mesa, California. The wife owned the La Mesa property before their marriage. However, sometime during their marriage, she converted the title to joint tenancy with the husband. By doing so, the property was “transmuted” from her separate property to the parties’ community property. As a gesture of appreciation, the husband placed his wife on the title to a piece of property he owned before their marriage.
In 2006, however, the husband attempted to give 100 percent of the La Mesa property back to the wife. By this time, there was a lot of strife within their relationship. As the husband explained at trial, he prepared and executed an interspousal transfer deed “in an attempt to put an end to their arguments and conflicts.”
However, when the husband handed the interspousal deed to the wife, she acted surprised and immediately rejected it. In rejecting the deed, the wife insisted all the parties’ property should be jointly held. Consequently, the unsigned deed was placed in a drawer where it remained untouched for the following six years.
In 2012 the parties’ marriage unraveled. After a serious altercation, the wife was arrested for domestic violence and served with a protective order. The protective order barred her from entering the family residence. Nevertheless, in violation of the protective order, the wife snuck into the family residence and gained possession of the unsigned deed in the drawer. The wife then signed the deed and recorded it with the county recorder’s office.
At trial, the wife argued her delay in signing the deed had no legal consequences. According to the wife, once her husband presented her with the signed Interspousal Transfer Deed, the transmutation was complete. Acceptance of transmutation was not required under the law, according to the wife.
Unfortunately for the wife, the judge did not buy her argument. In finding in favor of the husband, the judge held that a transmutation had not occurred when the husband presented his wife with the deed because the wife rejected the transfer. Consequently, the judge found the La Mesa property was a community asset.
Unhappy with the trial court’s decision, the wife filed an appeal, but the trial court’s ruling was affirmed. The Court of Appeal agreed with the trial court’s determination that there was no valid transmutation when the husband presented the signed interspousal transfer deed to the wife. The higher Court held that a transmutation must be accepted by the spouse to whom the transfer is made.
In these situations, the Court reasoned, it would make no sense if acceptance of a transmutation was unnecessary, as it would deny the recipient the right to refuse such a transfer.
In conclusion, the lessons learned from the Marriage of Wozniak are essential. We realize that transmuting community property into separate property requires more than signing a deed. If the transmutation is not accepted, then there is no transmutation.
In addition, if you plan to accept a transmutation, do not wait six years before accepting it. By that time, the opposing party may have changed his or her mind.