TRANSMUTATIONS: MAKING THEM STICK
Most married couples will, throughout the course of the marriage, exchange any number of gifts with each other. Gifts such as jewelry, clothing, cars, etc., are considered articles of a personal nature intended to be used solely or principally by the receiving spouse, and for the most part have no legal significance. If the parties were to later divorce, all such gifts would become the separate property of the receiving spouse.
But suppose the “gift” was a community property asset that one spouse wanted to give to the other as his/her separate property. Or a spouse’s separate property that he/she wanted to give to the community, or to the other spouse as his/her separate property. In California, an exchange of this nature is called a “transmutation,” and if it is not done correctly, it will fail, regardless of the clear intent of the parties.
What Is A Transmutation?
A transmutation is a change in the characterization of property. Thus, a married couple may, by agreement or transfer, with or without consideration, (1) transmute community property to separate property of either spouse, (2) transmute separate property of either spouse to community property, or (3) transmute separate property of one spouse to separate property of the other spouse. (Family Code § 851.)
How Is It Done?
Transmutations are governed by California Family Code Section 852, and have been the subject of a number of California Supreme and Appellate Court decisions. Section 852 states, in part:
“(a) A transmutation of real or personal property is not valid unless 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 effected.”
Thus, the first requirement for a valid transmutation is a writing. Next, the writing must contain an express declaration. The California Supreme Court interpreted the “express declaration” provision as “requiring language which expressly states that a change in the characterization or ownership of the property is being made.” (Estate of MacDonald (1990) 51 Cal.3d 262, 272.)
Further, the determination of whether the language of a writing purporting to transmute property meets the MacDonald test must be made by reference to the writing itself, without resort to extrinsic evidence (meaning outside evidence, beyond the writing on its face). Finally, the express declaration must be “made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely effected.”
The MacDonald Court noted that although no particular terms, such as “transmutation,” “community property” or “separate property” are required in an express declaration, nevertheless, it must be clear from the writing that the adversely effected party was aware that the legal effect of his/her signature on the writing might be to alter the character or ownership of his/her interest in the asset.
The Take Away
There are no exceptions to the requirements of Family Code Section 852. If you and your spouse wish to transmute property, you need to comply with the statutory requirements and you need to include the proper language, or else it may not be enforceable upon divorce. Thus, if you intend to transmute property, it is wise to consult with an attorney.