California Court Reviews State Laws Affecting “Transmutation” of Separate Property in Divorce

red-symbols-1-1092767-m.jpgEvery state in the country enacts its own laws governing marriage and divorce. Many people know that California is a “community property” state, which means that most assets and debts acquired during the marriage are subject to division between the spouses in divorce. Identifying and characterizing such property can have wide-ranging effects on the relative financial positions of the divorcing parties. For this reason, spouses often dispute the character of various assets when it comes time to dividing up marital property. If you make the decision to divorce, it is extremely important to protect your future and your financial rights. An experienced San Diego family law attorney would know and understand the local laws governing the division of property and would work to ensure that your rights are sufficiently protected.

In some cases, spouses may attempt to claim that separate property has been “transmuted” to community property. In a recent case, In re Marriage of Lafkas, the court issued a judgment dissolving the marriage in 2010. The husband sought a separate trial to determine the interest in a partnership that he claimed was separate property and that his wife claimed was community property. Here, the husband owned a one-third interest in a real estate partnership since 1971, prior to the marriage. The couple married in 1990. In 1995, the partnership needed a loan to purchase certain properties, and the husband asked the wife to participate in the transaction. The husband testified that, since he was married, he thought the bank required his wife to be added to the partnership and the loan application. The parties executed a modification and extension of the agreement, adding language indicating that the husband and wife together had a one-third interest in the partnership.

The parties separated 10 months later. During the trial regarding the interest in the partnership, the husband argued that none of the documents, including the modification, contained an express declaration transmuting his separate property interest in the partnership. He did not believe that he had assigned any of his interest in the partnership to his wife, and he did not intend to change the character of his partnership or to convert his separate property interest. The wife argued that she believed she became a partner upon signing the modification. The trial court concluded that the modification agreement converted the husband’s one-third interest to a shared one-third interest taken as “husband and wife.” But the court limited the reach of its holding by concluding that it was not the parties’ intent to wholly convert the husband’s holding prior to June 1995. Therefore, the couple had an undivided one-third share in the partnership from June 1995 forward. The husband appealed.

In reviewing the case, the court of appeals looked at a variety of factors: the mutual intent of the parties and the applicable statutes, including the plain meaning of the provisions, legislative history, and the reasonableness of the parties’ proposed construction. The court first concluded that the modification agreement did not satisfy the requirements of Section 852 for a valid transmutation from separate property to community property. For example, language is required that shows that the adversely affected party understands that the character of the property is being changed. The wife argued that the modification agreement provided for the parties to hold the title “jointly,” invoking Section 2581, and therefore rendered the community property interest subject to division.

The court looked in depth at the history and interplay between the two statutes, and it concluded that Section 2851 applies at the time of separation or dissolution to property that has been first validly transmuted to joint title under Section 852. Therefore, the husband retained his one-third partnership interest under the new partnership agreement.

Clearly, the division of marital property can quickly become a complicated process if you are not fully aware of the state laws governing your case. For this reason alone, it is important to consult with an experienced family law attorney if you are considering a divorce. Roy M. Doppelt has been representing parties involved in family law disputes for more than 20 years. Doppelt & Forney serves clients throughout Southern California, including San Diego, Encinitas, La Jolla, and Chula Vista. For a free consultation, contact Doppelt & Forney through our website, or give us a call toll-free at (800) ROY IS IT (769-4748).

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