The husband (John) owned one-third of a real estate partnership for several years prior to marrying his wife (Jean). During the parties' marriage, the partnership modified the partnership agreement. The modified agreement stated the names of each partner, including husband and wife as owners of a one-third interest. Jean and John filed for dissolution within a year of signing the new partnership agreement. On appeal, John contends the partnership interest is his separate property because the documents do not contain an express declaration transmuting the character of the property interest as required under Family Code section 852. Jean asserts that the partnership interest is community property under the joint title presumption of section 2581, which provides that property acquired during marriage in joint form is presumed to be community property.
Fact Summary
John formed a real property investment partnership with two friends in 1972. Each partner received a one-third interest. The partnership later purchased a property in Monrovia which was sufficient to meet all the property’s expenses. John was listed as an unmarried man on the statement of partnership. John married Jean in 1990. In 1995, the partnership bought a property in Riverside in a tax deferred exchange. The Riverside property’s cost exceeded the funds realized from the Monrovia sale. The partners applied for a loan to finance the balance of the purchase price. John believed Jean was required to participate in the transaction. Jean was added to the partnership as a joint holder of a one-third interest with John. The agreement was then recorded with the state. Ten months later John and Jean separated. John believed he owned one-third of the Partnership before and after the modification. John never intended to change its character.Trial Court’s Ruling
The trial court ruled that modification to the partnership agreement transmuted the private property into community property. The trial court pointed to language in the partnership agreement referring to the the parties as “Husband and Wife.” Using this the trial court found that under Section 852, subdivision (a), a transmutation occurred. The court also found that John did not intend to change the character of his separate property. John was ordered to pay $195,500 in attorney’s fees to Jean. John appealed.
Appellate Court Decision
A married person may transmute the character of property from separate to community or from community to separate by agreement or transfer, with or without consideration. (§ 850.) However, the transmutation must meet statutory requirements to be valid. (In re Marriage of Haines (1995) 33 Cal.App.4th 277, 293 [39 Cal.Rptr.2d 673].) "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." (§ 852, subd. (a).) The express declaration must unambiguously indicate a change in character or ownership of property. Though no particular terminology is required [citation], the writing must reflect a transmutation on its face, and must eliminate the need to consider other evidence in divining this intent. [Citation.]" (In re Marriage of Benson (2005) 36 Cal.4th 1096, 1106-1107 [32 Cal.Rptr.3d 471, 116 P.3d 1152].) "The express declaration must unambiguously indicate a change in character or ownership of property. [Citation.] A party does not `slip into a transmutation by accident.' [Citation.]" (In re Marriage of Starkman, supra, at p. 664.)
Here, the appellate court held that the partnership agreement signed by both John and Jean did not meet that requirement. A valid transmutation requires more than simply naming one or both spouses as the owner in a title document. The court states the language used must show that the adversely affected party understood that he or she changed the character of the property. That language was not present in the subsequent partnership agreement.
Thus, for a transmutation to occur, the express language must indicate a clear understanding in writing that the character or ownership of specific property has been changed. The appellate court reversed the partnership’s community property characterization. It also reversed the fees order. The appellate court held that when the provisions of sections 2581 and 852 conflict, the transmutation requirements of section 852 must be met before the joint title presumption of section 2581 applies.
Additionally, the case was remanded for the trial court to consider whether loans used to acquire the Riverside property were made in reliance upon community assets.
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