The existing rule regarding California divorces is that property acquired before marriage is separate property. But the existing rule has also been that property changed into joint form during marriage is treated as community property if the parties end up getting divorced, even if the property was first acquired before marriage. Get that?
But in a 3-0 decision, the California Court of Appeal held last week that property converted into joint form in marriage after originally being acquired before marriage is only community property if there is compliance with the transmutation requirements of Family Code section 852. Or, as the justices in this case, Marriage of Lafkas, stated, “the transmutation requirements of section 852 must be satisfied before the joint title presumption of section 2581 applies”.
Lafkas involved a husband who owned one-third of a real estate partnership before his marriage. The husband got married in 1990. In 1995, as part of a complicated transaction that involved a 1031 tax deferred exchange, a two page document was prepared that was entitled “Modification and Extension of General Partnership Agreement”. The Agreement identified the partners as “John and Jean Lafkas, as to 1/3 interest” as well as several other individuals.
At the trial level, the husband lost when the judge found that what was once all his (or at lest the one third interest) was now community property. But because of section 852, he won on appeal. Section 852 says that “[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”. A prior case described an “express declaration” as “a writing signed by the adversely affected spouse ‘which expressly states that the characterization or ownership of the property is being changed”. Yet another case wryly noted that “[a] party does not ‘slip into a transmutation by accident'”.
In this case, said the appeals court, “[t]he modification agreement does not meet the requirements for a valid transmutation of Lafkas’s separate property to community property under section 852, because it does not contain any express declaration that the characterization or ownership of the property is being changed. The modification signed by Lafkas simply adds [the wife’s] name as owner of an undivided one-third interest as husband and wife. A valid transmutation requires more than simply naming one or both spouses as the owner in a title document”.
The decision was made by the branch of the Court of Appeal in Los Angeles, but because this case was certified for publication, it is binding on all trial courts in California and may be relied upon as precedent by judges and lawyers.