How do I change the character of property during my marriage?
All assets acquired during the marriage are presumed community property subject to an equal division upon dissolution or legal separation. However, spouses may change property from community to separate or from separate to community property be entering into a transmutation agreement. However, to enter into these agreements, certain rules must be complied with.
First, "Both before and during marriage, spouses may agree to change the status of any or all of their property through a property transmutation." (FC § 850.) FC § 852 (a) provides that a transmutation of property must be in writing by an express declaration by the spouse whose interest in the property is adversely affected. This means there must be an express declaration that expressly states that a change in the characterization or ownership of the property is being made. (Irmo Holtemann (2008) 166 Cal.App.4th 1166, 1172.)
In addition, FC § 721(b) provides that ‘a husband and wife are subject to the general rules governing fiduciary relationships - a relationship that imposes a duty of the highest good faith and fair dealing on each spouse. Neither may take any unfair advantage of the other. Thus, ‘[w]hen an interspousal transaction advantages one spouse, "[t]he law, from considerations of public policy, presumes such transactions to have been induced by undue influence." ’" (Irmo Kieturakis (2006) 138 Cal.App.4th 56, 84.) Generally, a spouse obtains an advantage if that spouse’s position is improved, he or she obtains a favorable opportunity, or otherwise gains, benefits, or profits." (Irmo Mathews (2005) 133 Cal.App.4th 624, 629.)
Spouses may want to enter into such agreements to ensure that if the marriage is ever terminated, there will not be an issue regarding that asset. In addition, all income derived from a community property asset is community property and all income derived from a separate property asset is separate property. As such, the parties may want to change the character of an income producing asset so that there will not be a dispute at a latter date to any income produced by that asset. If you are interested in discussing whether a transmutation agreement is right for you, please don’t hesitate to contact Covina attorney, Paul A. Eads at (626) 524-8418.