California is one of a handful of states that use a “community property” system for dividing married couple’s assets upon divorce. The general concept of a community property system is that all assets acquired by a married couple during the marriage are presumed to be owned equally upon divorce. Of course, this is subject to many exceptions and nuances.
California originally adopted a community property regime in 1850. However, many of Califonia’s original community property rules reflected an antiquated culture in which a husband had greater control over property than a wife. Over the past 170 years, the Legislature and Courts have refined the community property rules. Recently, in July 2020, the California Supreme Court issued a ruling in Speier v. Brace (“Speier”) that clarifies which presumption governs the characterization of real property acquired held in joint tenancy.
A presumption is a rule of law that allows a court to assume a fact is true unless the person contesting that fact presents a sufficient amount of evidence to disprove the presumption. (Black’s Law Dictionary; The People’s Law Dictionary). Presumptions can be valuable to judges because they offer clarity on how to weigh the evidence presented. For example, California Family Law Code section 760 (“Section 760”) creates the presumption that all property acquired by a married person while domiciled in California is presumed to be community property, subject to exceptions. (Family Law Code section 760). Applying this presumption, a parcel of real property purchased by a married couple during the marriage is presumed to be community property.
However, statutes involving presumptions often conflict with one another. For example, California Code of Evidence section 622 (“Section 622”) creates a presumption that “the facts recited in a written instrument”, such as a deed, are conclusively presumed to be true between the parties. So what happens when a married couple uses community assets to buy real property during the marriage, yet obtain title as “joint tenants”? Indeed, this is the issue the Speier Court considered in the context of bankruptcy proceeding.
In Speier, the husband and wife (“Braces”) married in 1972. During the marriage, in or around 1977, the Braces purchased two parcels of real property using community funds – one in Redlands and one in San Bernadino (collectively “Properties”). However, the Braces took title to the properties as joint tenants. Thereafter, the husband filed for bankruptcy. Accordingly, at issue was how much property a bankruptcy can reach to satisfy a single spouse’s debts.
The Speier Court concluded Section 662 does not apply when it conflicts with Section 760. The corollary is that when a married couple uses community funds to acquire title and place the title in joint tenancy after January 1, 1975, the property is presumptively community property. For property acquired prior to 1975, courts apply the “married woman’s presumption”, which stated that any property held in a woman’s name alone, including as a joint tenant, was presumed to be her separate property. This presumption eliminated by Civil Code section 5110, which went into effect beginning January 1, 1975.
While presumptions provide a default rule, they are not always conclusive. The Speier Court next considered whether a joint tenancy deed is sufficient to “transmute” the character of community property to separate property. A “transmutation” is an interspousal transaction or agreement that changes the character of property as community or separate. (In re Marriage of Rossin (2009) 172 Cal.App.4th725) The Speier Court thoroughly analyzed the history of transmutation in the context of community property and found that a joint tenancy deed executed after January 1, 1985 is not sufficient to transmute community property into separate property.
Prior to 1985, a spouse could transmute the character of property through either written or verbal statements of intent to transmute. However, this rule gave birth to numerous situations of fraud and undue influence. In 1985, the Legislature enacted a “transmutation statute” pursuant to which a transmutation is not valid unless made in writing by express declaration “made, joined in, consented to or accepted by the spouse whose interest in the property is adversely affected.” (Family Law Code section 852) The Speier Court found that a deed conveying property as “joint tenants” does not meet the rigid requirements of Family Law Code section 852.
As Speier exemplifies, community property rules can be complex and are perpetually evolving. If you are a real property owner who is contemplating marriage, contemplating divorce, or going through bankruptcy, you may want to consult with an attorney so that you can fully understand your rights. The attorneys at Schorr Law have years of experience assisting clients with real property issues including those involving title and community real property. Contact Schorr Law to schedule a consultation today.