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How to Characterize Property Outside of California

California is a community property state, and Family Code section 760 defines community property as, “all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this [California] is community property.”

The phrase “wherever situated” means that a spouse who lives in California can acquire property that is characterized as community property even if that property is located outside of California. The key is the spouse him or herself must be living in California, and the property must have been acquired during the marriage. This includes real property such as a home or a lot of land, as well as personal property, such as a car, an antique, jewelry, etc.

Therefore, a court in California will treat out-of-state property as community property, and can divide the values of such in half according to community property laws, or according to the terms of the parties’ agreement. Where the authorities ends, however, is the California court’s ability to directly affect or transfer the title of the property, unless it’s allowed by the other state’s law.

If a couple lives in a state that does not follow community property rules, and acquires property while married, then moves to California, the property itself will not change to community property. This is because it was acquired during the marriage, while they couple was living in a non-community property state. Property treated as community property. But, under the equitable rules of “quasi-community property,” their this property acquired during marriage may be treated as community property for purposes of defining marital property debt liability and property division rights upon marriage termination.

Another way property can be characterized as community would be by agreement, or as it is referred to in family law, “transmutation.” This sounds like a science experiment, but it is merely a written agreement. This gives the couple the power to change the characterization of a property from community to separate, or vice versa.

This does not mean that title of a community property house or item is merely “transferred” to one spouse, it must be more than that. Under Family Code section 852, the agreement must be in writing, signed by the spouse whose interest is adversely affected. This means that the spouse that is giving up an interest in property must sign the agreement. For a property that is community, where both spouses have an equal and undivided interest in the property, this would mean that the spouse losing his or her one-half interest would need to sign the agreement.

That is not all. Just to make extra sure that a couple intends to change the characterization of property, the agreement must also contain some language that expressly states that the characterization or ownership of the property is being changed. A valid transmutation agreement need not use the term “transmutation” or any legal or formal terms. It doesn’t even need to mention the terms “community or separation property.” For example, the agreement may state, “I give to my spouse any interest I have in my house in Malibu.”

If you are unsure as to the characterization of certain property, or if you would like to change the characterization of your property, call Cage & Miles, LLP to set up a free 30-minute consultation today.