In California, separate property is everything a spouse has going into the marriage, or acquisitions by gift or inheritance received during the marriage. However, spouses can sometimes do things (intentionally or not) to effect the underlying characteristic of a property. A transmutation is an interposal transaction that changes the character and ownership of an asset.
There are two basic kinds of transmutations. The first kind of transmutation is when a spouse transmutes their separate property to community property. For example, if one spouse owns a home prior to marriage, and wants to add their spouse to title after the marriage, they would do so through a transmutation. For the transmutation to be valid, an express declaration by both spouses acknowledging the change is required. Under current case law, a deed is a valid transmutation, but DMV records are not.
The other type of transmutation occurs when the parties transmute community property to the separate property of one spouse. This can be a little trickier, because it requires the advantaged spouse to show that there was no “undue influences” exerted on the disadvantaged spouse. In fact, a presumption of “undue influence” arises simply by transmuting community property to one spouse.. This means a judge would simply assume the disadvantaged spouse was a victim of undue influence unless the advantaged spouse can present evidence to the contrary.
Whether or not the advantaged spouse can overcome the presumption of undue influence requires a 3-Step Analysis:
1) The first step is to determine whether or not the transmutation was valid as to form. For any transmutation made after January 1, 1985, a transmutation requires an express declaration in writing. Prior to January 1, 1985, oral transmutations were permitted.
2) The second step is to determine if the transaction was free from undue influence. If the advantaged spouse can prove the following, he or she can overcome presumption of undue influence:
· The transaction was freely and voluntarily made.
· The decision was made with full knowledge of all facts.
· The decision was made with full understanding of its legal effect.
· The transaction was fair and just.
· The disadvantaged spouse was adequately compensated in some way.
3) The final step is to determine whether or not one spouse is entitled to reimbursement.
a. If one spouse contributed their own separate property to the acquisition of either community property or the separate property of the other spouse, he or she is entitled to reimbursement unless there is a written waiver.
If you are considering transmuting property, it is always a good idea to consult with an attorney. This is a highly-litigated area of the law.