What is a “transmutation?” While the word may sound like it came from an episode of Teenage Mutant Ninja Turtles, it carries with it some serious repercussions that could greatly affect your legal rights to your property upon a divorce. A transmutation is essentially a transfer of either real or personal property between spouse with the effect of changing the character of the property. There are many variations of a transmutation: from one spouse’s separate property (owned 100% by that spouse) to community property (owned 50% by each spouse), from community property to one spouse’s separate property, or from one spouse’s separate property to the other spouse’s separate property.
Whichever type of transmutation you are handling, you will want to make sure that you are consulting with a San Diego divorce attorney, even if divorce is not on your radar, in order to make sure that you are well advised on what needs to happen in order to have a valid transmutation in San Diego.
Family Code Section 852(a) states “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.”
This means that in order for your transmutation to be valid and binding, the transfer will need to be in writing, signed by the spouse who is losing something because of the transfer, and must state very clearly that the adversely affected spouse knows exactly what he/she/they are doing in agreeing to change the character of the property.
Whenever a transmutation occurs, it means that someone is giving up a portion of ownership interest in the property being transferred. Often, transmutations involve real property and can result in a spouse giving up a large amount of money in the process of transmutation.
Because of the gravity of the consequences that transmutations can carry, the transfer must be in writing, and verbal agreements are not binding. A San Diego divorce attorney will be able to carefully advise you on the type of writing you need in order to make a transmutation valid and binding, to ensure that what you and your spouse intend to happen actually does happen.
The case law in In Re Marriage of Haines (1995) 33 Cal.App.4th 277 states, “Because spouses occupy confidential relations with each other, when an interspousal transaction advantages one spouse over the other, a presumption of undue influence arises.” It is up to the advantaged spouse to show the court that the other spouse was not unduly influenced in the transaction.
Undue influence generally occurs when an individual uses their power or relationship to another individual in order to influence the other individual to take actions adverse to their interests, which they would not have otherwise done voluntarily.
Family Code Section 2640 allows for a spouse who contributes their separate property toward the acquisition or improvement of community property during marriage to seek reimbursement. This code section can also apply to a transmutation of the separate property of one spouse to community property.
This means that even if a valid transmutation occurs, the spouse who gave up separate property ownership could still get back a portion of what they transferred by way of a dollar-for-dollar reimbursement of the value of the interest that was transferred at the time it was transferred.
As you can imagine, the spouse who benefitted from the transmutation is going to want to ensure that the transmutation from the adversely affected spouse’s separate property to community property does come with a hanging potential right of reimbursement. Therefore, is it vitally important, specifically when spouses are transmuting separate property to community property or the separate property of the other spouse, to ensure that along with a valid transmutation, the transferring spouse is also waiving all rights to reimbursement under Family Code Section 2640.
Case law in In Re Marriage of Perkal (1988) 203 CA 3d 1198 and In Re Marriage of Carpenter (2002) 100 CA 4th 424 states that the right to a spouse’s reimbursement for separate property can only be waived in a separate written instrument, completely separate and apart from the written transmutation document(s).
Wading the waters of ensuring that your transmutation is valid is very tricky and, if done incorrectly, can have serious legal consequences. It is very important to consult with a San Diego divorce attorney anytime you or your spouse is thinking of transmuting any real or personal property during marriage. Especially when dealing with real property in San Diego, you will want to hire a San Diego divorce attorney who can advise you as to the specific property at issue.