Make sure you know how to transfer property between you and your spouse before attempting to do so. With the exception of a gift from one spouse to the other of tangible articles of a personal nature used solely or principally by the spouse to whom the gift is made, such a transfer may be determined invalid in a proceeding for divorce or legal separation. The transfer must be in writing and the language of transfer must unambiguously indicate a change in character or ownership of the property and the specific interest which is being transferred.

Marital property, whether real estate or personal, is generally characterized in one of three ways for the purpose of dividing it in a divorce or legal separation: separate property; community property; or, quasi-community property.

The separate property of a married person includes: all property owned by the person before marriage; and, all property acquired by the person after marriage by gift, bequest (meaning gifted personal property through the last will of someone who passes away), devise (meaning gifted real estate through the last will of someone who passes away), or descent (meaning by hereditary inheritance according to the laws of the State when a relative passes away). (See Family Code section 770.) Additionally, the “rents, issues, and profits” (for the purposes of this post, meaning the actual rents received and/or the net profits (see People v. Gustafson (1942) 53 Cal.App.2d 230, 239)) from separate property are also characterized as separate property. (See id.)

Community property is all real estate and personal property which is acquired by a married person while domiciled in California, unless provided otherwise by statute. (See Family Code section 760.) In California, all property proven to have been acquired during the marriage is legally presumed to be community property (and is referred to as the general community property presumption). The burden is on the person claiming presumed community property is actually separate property to prove so by a preponderance of the evidence. (See, e.g., Marriage of Valli (2014).)

Quasi-community property is property which is acquired during the marriage while a spouse is domiciled outside California and which would be community property had the spouse been domiciled in California when he or she acquired it. (See Family Code section 125.) Quasi-community property is treated like community property for the purpose of division between the parties in a divorce or legal separation.

Family Code section 850 permits a spouse to change the character of property from the separate property of that spouse to community property or to the separate property of the other spouse. It also permits the spouses to change community property to the separate property of either spouse. The legal jargon for a change of character of property or ownership interests between spouses themselves is called a “transmutation.”

However, under Family Code section 852 and with the exception of
“clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made” and “not substantial in value taking into account the circumstances of the marriage,” a transmutation requires a written “express declaration” (which the California Legislature did not define in the Family Code) of such an intention. Further, the express declaration must be made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected, including the spouse who transfers his or her interest in the property. Hence, in divorce and legal separation proceedings, litigation often exists as to whether an actual transmutation occurred.

FACTS*

With the above in mind, Marriage of Begian and Sarajian (2018) concerned residential real estate (“residence”) in Glendale acquired through a series of transactions and whether the husband, Richard Begian, transferred his community interest in the residence to Wife, Ida Sarajian, as her separate property. Richard argued he didn’t transfer an interest; Ida argued he did.

Richard and Ida were married in 1983 and separated in 2015. The following series of transactions regarding the residence took place thereafter:

• In 1996, Ida’s mother, Rose Sarajian, executed a quitclaim deed of a partial (48%) interest in the residence to Ida. The same day, Richard executed a quitclaim deed transferring any ownership interest in the residence he might have to Ida as her sole and separate property.
• In 2001, Rose and Ida executed another deed granting their respective 52% and 48% interests in the residence to Rose, Ida, and Richard as joint tenants. (No dispute exists that this transfer effectively granted Richard and Ida a community interest in the residence.)
• In 2006, Rose, Ida, and Richard as joint tenants executed yet another deed entitled “Trust Transfer Deed,” which granted the residence to Ida rather than to Ida as trustee of any trust. The deed also stated the conveyance was not subject to documentary transfer tax because it was a “‘bonafide gift and grantor received nothing in return . . .'”
• In 2014, Ida created the “Ida Sarajian Separate Property Trust,” and by separate deed she granted the residence to herself as Trustee of the Ida Sarajian Separate Property Trust.

In late 2015, Richard filed for divorce and asked the family court to determine the residence was community property (and not Ida’s separate property).

In June, 2016, the family court addressed the issue of characterization of the residence. Richard, as the adversely affected spouse, argued the 2006 deed did not unambiguously declare his intention to transfer his community interest to Ida as her separate property, the Trust Transfer Deed was prepared and signed only for the purpose of estate planning, and therefore the transaction failed to satisfy section 852’s express declaration requirement.

Ida argued use of the word “grant” unambiguously demonstrated the parties’ intention to change the characterization and ownership of the residence from a joint tenancy into Ida’s separate property and that the title of the document, “Trust Transfer Deed,” was irrelevant in terms of the express declaration requirement because it made no mention of her being granted the residence as a trustee of any trust, let alone the 2014 trust.

In August, 2016, the family court concluded a valid transmutation of Richard’s interest in the residence had occurred because the word “‘”grant” is the historically operative word for transferring interests in real property . . .'” and its use in the 2006 Trust Transfer Deed satisfied the express declaration requirement. The family court opined the conclusion was supported by Richard being given “clear notice that he was making a gift . . .,” and thus a change in characterization and ownership, through use of the phrase “bonafide gift” in the deed (the purpose of which was to exempt the transaction from the documentary transfer tax). The family court determined the deed’s title did “not undermine the clear expression” of intent because it did not transfer the respective interests to any trust but rather to Ida.

APPELLATE COURT ANALYSIS AND CONCLUSION*

The Second Appellate District, Division Three in Los Angeles began its analysis with the California Supreme Court’s interpretation of the meaning of “express declaration” in Family Code section 852: “a writing signed by the adversely affected spouse is not an ‘express declaration’ for the purposes of [section 852(a)] unless it contains language which expressly states that the characterization or ownership of the property is being changed.” (Estate of McDonald (1990) 51 Cal.3d 262, 272.) Words like transmutation, community property, separate property, and the like are not required. (See id., at 272-273). “‘The express declaration must unambiguously indicate a change in character or ownership of property'” (Marriage of Starkman (2005) 129 Cal.App.4th 659, 664), and it is ambiguous if “‘the written language is fairly susceptible of two or more constructions'” (Estate of Russell (1968) 69 Cal.2nd 200, 211). “‘In deciding whether a transmutation has occurred , we interpret the written instruments independently, without resort to extrinsic evidence.'” (Marriage of Starkman, supra, 129 Cal.App.4th at p. 664/) “Strict adherence to formalities is required to protect the adversely affected party from transmuting property by accident [citations omitted].” (Id.)

Richard argued the Trust Transfer Deed contained two ambiguities which when combined do not meet the express declaration requirement: 1) the title, i.e., “Trust Transfer Deed,” suggested the transfer pertained to a trust; and, 2) “the deed does not say what interest is being granted.” In other words, contrary to an intention to transmute the residence, Richard could have intended only to grant that his community interest would be held in trust by Ida without any change in character or ownership of the residence.

The appellate court cited Marriage of Barneson (1999) 69 Cal.App.4th 583, 586, in which the husband, a stroke victim, gave instructions to his stockbroker to “‘sell, assign, and transfer'” stock into his wife’s name and “journal” stock in his account into his wife’s account. Later, Husband petitioned for divorce and return of his stock. The family court found the stock transfers to be a transmutation of the husband’s stock into the wife’s separate property, and the appellate court thereafter found the transmutation to be invalid and reversed the decision of the family court.

The Barneson appellate opinion stated the express declaration language of Family Code section 852 can be viewed as effectively creating a presumption that transactions between spouses are not transmutations unless the presumption is rebutted. (Marriage of Barneson, supra, 69 Cal.App.4th at p. 593.)

The wife in Barneson, however, did not rebut the presumption. The instructions to the broker “only directed transfer,” of the stocks “without specifying what interest was being transferred.” (Id., at 591.) Her husband “may simply have intended to enable [her] to more easily manage his financial affairs for him after his stroke . . . without changing its ownership or characterization.” (Id.) And “[n]othing on the face of the documents . . . precludes the possibility the transfer was made in trust.” (Id.) And it is irrelevant whether there was an actual trust because the express declaration requirement cannot be satisfied with other than the purported transmutation document itself.

As in Barneson, nothing precluded the possibility that Richard was simply granting a transfer of his community interest in the residence to Ida’s trust. Additionally, according to the appellate court, the title of the document, Trust Transfer Deed, compounds this ambiguity” because it further supports Richard’s intention to place his community interest into a trust, and not with the intention to change its characterization or ownership.

Ida attempted to distinguish the Barneson facts, arguing the Trust Transfer Deed used the word “grant,” not “transfer,” and the deed expressly stated the transfer was a “bonafide gift.” She relied on Estate of Bibb (2001) 87 Cal.App.4th 461 to support her first argument.

In Bibb, the appellate court was asked to decide whether a grant deed signed by the husband and transferring his separate property real estate to himself and his wife as joint tenants satisfied the express declaration requirement. (See Estate of Bibb, supra, 87 Cal.App.4th at p. 465.) The pertinent language in the grant deed stated: “E.L. Bibb, as surviving joint tenant hereby grant(s) to E.L. Bibb and Evelyn R. Bibb, his wife as joint tenants the following described real property in the City of Berkeley . . .” (Id., at p. 468, fn. 3.)

Mr. Bibb’s child from a prior marriage argued the grant deed did not satisfy the express declaration requirement because it did not contain language expressly stating that the characterization or ownership was being changed. (See id., at p. 465.) Mr. Bibb’s wife argued the property was presumed to be held in joint tenancy, as described in the grant deed and hence excluded from probate as her husband’s interest became hers upon his death.

The appellate court began by admitting the Bibb appellate court based its decision on the premise that the word “‘grant’ is the historically operative word for transferring interests in real property” (see Estate of Bibb, supra, 87 Cal.App.4th at p. 469), and Richard’s use of the word “grant” is therefore an unambiguous expression of intent to transfer an interest. The difference, however is that in Bibb the word “grant” did not end the inquiry into the specific interest transferred by Mr. Bibb which was an unambiguous joint tenancy. The word “grant,” by itself is ambiguous. Moreover, the word “Trust Transfer” compounded the ambiguity.

As for Ida’s other argument, the bonafide gift language, she argued the word “gift” unambiguously established a change in character of the property. The appellate court failed for the same reason the word “grant” did: it did not specify the interest gifted.

CONCLUSION*

The appellate court concluded “the [2006] deed is fairly susceptible of at least two interpretations – the one Ida proffered, whereby Richard granted all of his interest [in the residence] to her, and the one Richard proffers, whereby he granted only an interest in trust to idea for the couples estate planning purposes.” Because no “definitive judgment” about Richard’s intention in granting the transfer can be made from the Transfer Trust Deed itself and because courts are barred from using extrinsic evidence to “resolve the conflicting interpretations,” the default presumption that a transfer of property between spouses is not a transmutation has not been rebutted. The Trust Transfer Deed did not transmute Richard’s community interest in the residence.

*For brevity, all of the facts, the analysis, and the conclusion are paraphrased or my interpretation of the inferences from the appellate opinion. Otherwise, they are quoted with citations. Some portions of the facts, analysis, and conclusion are omitted.