In my June 2017 blog I discussed the effect of transfer of title to real property during marriage. The focus of this blog is on the narrow issue of how to characterize real property when one spouse signs a Quitclaim Deed when property is acquired during marriage.
Typical case: Harry and Wanda purchase a home during marriage. Because Wanda has poor credit, the realtor advises that Harry apply for the mortgage loan in his name alone. This will allow the parties to obtain a better interest rate than if both parties were on the loan. In this case the spouse who is not on the loan must sign a Quitclaim or Interspousal Transfer Deed. Ten years later Harry and Wanda separate and Wanda claims the residence is community property because it was acquired during marriage and she never intended to forego any interest she may have had in the residence. Harry takes the position that the signing by Wanda of a Quitclaim Deed was a valid transmutation of the residence to Harry’s separate property.
Family Code Section 760 provides that all property acquired during marriage and before separation other than by gift or inheritance is presumptively community property. This presumption may be rebutted by tracing the property acquired during marriage to a separate property source. Marriage of Haines (1995) 33 CA 4th 277. However, an asset acquired by either spouse during marriage will be treated as community property unless proven otherwise. The burden of proof rests on the party contesting the community property characterization of the property.
The parties can agree to change the character of property acquired during marriage. This is known as a “transmutation”, and requires an express written declaration signed by the party who is disadvantaged by the transaction. Marriage of Valli (2014) 58 C4th 13963. Furthermore, any such agreement is subject to the fiduciary standards set forth in Family Code Section 721, namely that in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse and neither shall take unfair advantage of the other.
A transmutation that unfairly advantages one spouse over the other is presumed to have been induced by undue influence. Marriage of Delaney (2003) 111 CA 4th 991. In such a case the advantaged party has the burden of proving by a preponderance of the evidence that the transaction was entered into freely and voluntarily with full knowledge of the facts and a complete understanding of the effect of the transfer. Marriage of Haines.
In Marriage of Fossum (2005), the court found that husband did not rebut the presumption of undue influence where wife had quitclaimed her interests in their community property residence to husband so that husband could obtain a lower interest rate on the mortgage, and husband failed to uphold his promise that wife’s name would be restored later. On appeal, the Court held that husband’s failure to keep his promise to add wife to title was a breach of fiduciary duty rendering the quit claim deed void.
Under a different set of facts, Marriage of Mathews (2005), the court found that husband met his burden to rebut the presumption of undue influence where the parties agreed that wife would sign a quit claim deed as a way to obtain a lower interest rate on the mortgage, and she freely and voluntarily did so. The court found that wife had full knowledge of all of the facts surrounding the execution of the quit claim deed and the reasons for it were clear to her. She admitted asking questions when she was unclear but asked none when she signed the quit claim. The court further found that husband placed no pressure on wife to sign the quit claim and the purchase of the residence was not dependent on wife signing the quit claim. The fact that wife also managed the household finances was further evidence as to her understanding of the legal effects of signing the quit claim.
Applying the facts in Harry and Wanda’s case, there is no evidence that the parties discussed the effect of the transactions surrounding the purchase of the residence. The court could conclude that the parties merely followed the advice of their realtor in order to obtain a lower interest. Additional facts would be helpful in the determination, such as whether husband obtained a prequalification letter from the lender based on his credit alone, and whether this was necessary in order to qualify for the purchase of the residence (i.e. they would not have qualified if wife’s credit was used).
In short, the execution of a Quitclaim Deed or Interspousal Transfer Deed during marriage by one spouse is not determinative, by itself, of the character of the property. The facts and circumstances of each case must be applied to the current case law in order to determine whether the transaction was consummated freely and voluntarily with full knowledge of the facts and a complete understanding of the effect of the transfer.
Do you want to know more about how the court determines the transfer of Quitclaim Deed as well as the latest information on family law? If you’d like more information in any area of family law, please contact our office to schedule a consultation. The Law Office of Family Law Attorneys Bawden & Kochis handle legal issues regarding separation, child custody, visitation, adoption, annulment, mediation, domestic violence, child and spousal support as well as pre and post-marital agreements. Telephone (909)792-0222, or email us at [email protected]