When an asset was acquired during marriage and title is held in one spouse’s name alone (title to the family residence for example), it is frequently assumed that the titleholder owns the asset alone as his or her separate property. During a divorce, title ownership is not the end of the community property or separate property analysis. For a number of reasons, the conclusion is not straight forward. Like so many legal questions, the answer is “it depends”.
Spouses have very high (fiduciary) duties to each other. These duties prevent one spouse from gaining an improper advantage over the other. Divorce attorneys will look carefully at any transaction where one party releases interest in an asset to the other during marriage to determine if his or her client was disadvantaged.
Frequently, property is purchased during marriage with title placed in only one party’s name. One spouse might have a better credit rating. Perhaps only one party can qualify for a mortgage or qualifies under more favorable interest terms. In this scenario, the title insurance company insists that this spouse take initial title concurrent with the purchase and mortgage and the other spouse executes a quitclaim deed. The parties plan to “put the other spouse back on title later” but don’t do so (for whatever reason).
Unless the community property used to purchase the asset was properly “transmuted” (see Family Code §852) to the titleholder’s separate property, the general presumption of community property will prevail over the title presumption in the Evidence Code. That’s the holding from the appeal in Frankie Valli’s divorce case (the singer from the Four Seasons, “Sherry” and “Grease”); see Marriage of Valli (2014) 58 Cal.4th 1396. The case involved a valuable life insurance policy. The insurance company listed one spouse as the “owner” of the policy, but the premiums had been paid during the marriage with community property, so title ownership wasn’t the end of the story.
Interspousal Transfer Deeds on real estate are also very problematic. We have been involved in many cases when one spouse signed over title to a house during a refinance. Whether this was a valid release for division of the community estate is very nuanced. The issue is frequently litigated and appealed. There is a presumption that when an interspousal transfer favors one spouse, it was induced by undue influence and is therefore invalid. See Marriage of Haines (1995) 33 Cal.App.4th 277, 293; Marriage of Bonds (2000) 24 Cal.4th 1, 27-28 (Yes. The Barry Bonds from the S.F. Giants); In re Marriage of Fossum (2011) 192 Cal.App.4th 336, 345. The presumption of undue influence prevails over the presumption from record title in Evidence Code §662 because there is a legislative policy of protecting spouses and the presumption of undue influence is more specific. See Marriage of Delaney (2003) 111 CA4th 991, 995-998; Marriage of Haines (cited above) on page 302.
However, there is a newer case called Marriage of Kushesh and Kushesh-Kaviani (2018) 27 Cal. App. 5th 449 that holds that an interspousal transfer deed can itself be a valid transmutation (changing a condo in that instance from community property to separate property) but the Appellate Court sent the case back to the trial court to determine if one spouse received an unfair advantage and if so, whether she overcame the presumption of undue influence.
Are you considering a divorce or separation in Sacramento, Placer, El Dorado or Yolo County? Do you have more questions about community property, transmutations or protecting your rights to property acquired during marriage when you’re not on title? The Sacramento divorce attorneys at Hughes Law Group can help. Please get in touch with us.