Yours, Mine or Ours Redux

DivorceLast year, we looked at what it takes to change separate property to community property and vice versa, called transmutation. While married, Dawnel and Frank Bovino bought a home in Westlake Village with a down payment that was Frank’s separate property and the proceeds of a loan taken out in Frank’s name alone. Just over a year later, Frank completed the sale of a house he owned before the marriage—also his separate property—and used the proceeds to pay off the loan on the new home. As such, it appeared that the Westlake home was acquired solely with Frank’s separate property, and in fact, it had been deeded to Frank as his sole and separate property. The Bovinos lived together in the home until Dawnel moved out several years later. So, was the Westlake home separate property, community property, or both?

When the couple dissolved their marriage in 2005, the trial court found that because it was purchased during the marriage, the home was presumed to be community property. The court further ruled that because Frank made contributions of his own separate property to acquire the home, he was entitled to receive reimbursement for those contributions under the Family Code. Needless to say, he was not happy with this result.

On appeal, the Court described a longstanding trend of requiring more and more certainty in the characterization of marital property, and then furthered that trend. The Court relied on Family Code §852, which states: “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 affected.” In essence what this means is that a married couple may change their property’s characterization (whether separate or community), but, they must make a written, “express declaration,” that states that the character or ownership of the property is being changed, and it must be signed by the spouse giving up marital property rights.

The Court of Appeals in Bovino held that “if property is acquired during marriage with both separate and community funds, the transmutation requirements of section 852 must be satisfied before the reimbursement provisions of section 2640 apply.” (Family Code §2640 deals with reimbursement of a spouse for contributions of separate property to the marital community.) Because there were no facts under which Mr. Bovino made an express, written transmutation of his separate property interest in the Westlake home, his separate property remained his separate property. Therefore, he was entitled to an interest proportionate to his separate property contributed, rather than merely §2640 reimbursements, which do not include interest or appreciation, and cannot exceed the value of the property at the time of dissolution.

The Appellate Court detailed the historical trend toward formality in transmutation. Spouses have long been able to change their property, but the evidence required to show a transmutation has changed. Early on, the presumption went with the form of title, but the title could be overcome by evidence of an oral agreement. This presumption of title was codified in 1965, and another presumption was created that a single family residence acquired in joint tenancy was presumed community property only for the sake of dissolution of the marriage. This was later extended to all property acquired in joint form during marriage.

A great deal of criticism surrounded the ease with which this scheme allowed spouses to unintentionally forfeit property, so in response to the reported injustices, the Legislature changed the transmutation requirements. Among those changes was § 852. Since its enactment, §852 has grown in preeminence. Courts have “declined to find a valid transmutation without a clear understanding in writing that the document changes the character or ownership of specific property.” (Bovino). This represents a marked change from the days of an oral agreement changing title.

Now, after Bovino, these same changes apply to reimbursements of separate property contributions to community property. The upshot of this is that spouses now have even more security in their separate property, and can feel that an off-handed comment, or a heart-felt promise are less able to be used in divorce proceedings court to retroactively divest them of their property interests. These changes make quit claim deeds between spouses where one acquires title as the spouse’s sole and separate property all the more important. And, we can expect increased rigor from title insurers looking at those transactions.