California Evidence Code section 662 provides that the owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof. However, when a married person acquires title in his/her name alone during marriage, the EC 662 presumptions conflicts with the community property presumption under Family Code section 760. Under this section, all property acquired by a married person during the marriage while domiciled in this state is community property.
Conflict of presumptions – Marriage of Valli (2014) 58 Cal.4th 1396, Dealt with the conflict between the presumption of title under EC 662 and community property presumption under Family Code 760. In Valli the husband, Frankie Valli, purchased a 3.75 million life insurance policy during marriage naming his wife, Randy Valli, as the sole beneficiary. The couple separated sometime after Frankie purchased the life insurance policy. Premiums during the marriage were paid with community funds, thus invoking the community property presumption. During their marital dissolution proceeding, Randy argued that the title presumption under EC 662 should control because the insurance policy was purchased from a third party, rather than a transaction between spouses. The Court rejected this argument and determined that the insurance policy was community property because it had been acquired during marriage.
Presumption of Undue Influence
Another common situation that arises in a dissolution proceeding is the effect of transfer of title during marriage. Couples often purchase a home together during marriage with both parties on the loan and title. Later, they refinance the loan, and in order to obtain a lower interest rate, only the spouse with the higher credit score is on the loan. This requires that the other spouse execute an interspousal transfer deed to the spouse who is obligated on the loan as his/her sole and separate property. Such a transfer during marriage invokes another presumption, namely that when an interspousal transfer advantages one spouse over the other, a presumption of undue influence arises. The advantaged spouse bears the burden to rebut this presumption. In most cases, the advantaged spouse is not able to successfully rebut this presumption and the property will be a community asset. Several cases dealt with this presumption under different facts, resulting in different rulings. In re Marriage of Delaney (2003) and In re Marriage of Haines will be discussed in more detail in a separate blog.
Presumptions and Transmutations
Spouses can change the character of property from separate to community, community to separate or separate property of one spouse to separate property of the other spouse. However, such transfers must be in writing and must follow strict requirements in order to constitute a valid transmutation (change in the character) of the property. The Transmutation statute in Family Code Section 852(a) provides 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.
Cases addressing the validity of alleged transmutations include, Estate of MacDonald (1990), Marriage of Begian and Sarajian (2018) and Marriage of Barneson (1999). These cases will also be discussed in more depth in a separate blog.
In summary, property characterization is determined by three factors:
- The time of acquisition of the property;
- The effect of various presumptions; and
- Determination as to whether spouses have transmuted or changed the character of the property.
Each of the above factors involves a careful analysis of the facts in a particular case and the relevant case law and statutes. If your case involves the acquisition or change in the character of property before or during marriage, you should consult with an experienced family law attorney.