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The Professor Nedley Series

The Shifting Tides of Marital Property

Property Rights, Transmutation and Tracing,

March, 2002

Transmutation is the legal analysis by the court of property being transferred by two or more marital partners. The court must analyze what was transferred and IF it was transferred. Tracing is NOT a legal analysis, but rather is a methodology to track what was transferred from one form of property to another.

Rules of Property Ownership and Earnings:

a. Basic Marital and Non-Marital Property Rights; Easy, simple rules were set forth many years ago so that there would be no confusion as to who owned what. Under §2550 the court just divides the property equally. It’s just that doggone simple.

i. §760. C.P. is all property acquired by a married person during the marriage. This includes personal and real property.

ii. §770. S.P. includes the following;

1. Property owned before marriage.

2. Gifted or inherited property.

3. Rents, issues & profits from S.P..

But under §850. Married persons may transmute property, meaning change property from one form of ownership to another, without consideration;

4. C.P. to S.P.

5. S.P. to C.P.

6. S.P. to S.P., all are permissible under §852 provided that the transfer is done in writing and without fraud.

b. Marital and Non-Marital Responsibilities and Obligations; This is the flip-side of the ledger on affirmative rights to property. These are the charges against property and the beginning of the “sorting out” rules.

i. §902. Defines Debt as an obligation as an obligation incurred by a married person before or during marriage in contract, tort or otherwise.

ii. §910. The C.P. Estate is liable for debt incurred before or during marriage by either spouse.

iii. §911. Earnings of a person during marriage are NOT liable for the debts incurred by the other prior to the marriage.

iv. §913. S.P. of one spouse IS responsible for their own premarital debt as well as the marital debt incurred by them during the marriage.

v. 913. S.P. of one spouse is NOT liable for the premarital debt of the other spouse, nor, for the marital debt incurred by the other spouse.

c. Reimbursement Rights: With the basic rules and definitions set forth above delineating S.P. vs. C.P. it is a simple task for the Court to determine each parties community and separate property rights, calculate the reimbursements due to each part and simply divide the property into two easy columns.

i. §914(b); S.P. payment of debtor spouse’s personal debt reimbursable to the extent debtor spouse had S.P. or C.P. available.

ii. 915 (b); C.P. Payment of obligor spouses C.S. or S.S. obligation reimbursable to extent obligor spouse had S.P. available to use.

iii. §916 (b). If property of a married person is applied to satisfy a money judgment of the other person then that person is entitled to a reimbursement.

iv. §2640. By statute, unless waived in writing, a party shall be reimbursed for that party’s S.P. contributions to the acquisition of C.P.. The calculations and the math.

1. Types of property

2. Mandatory?

3. Extent of Reimbursement

4. Tracing Battles

5. “Maintenance” costs vs. acquisition costs

6. Waivers – What kind of writing will suffice?

7. What about interest and appreciation?

v. Epstein Reimbursements. 24 C3d 896. When given? At the time of trial the court has jurisdiction to order reimbursement to a spouse who uses S.P. funds to pay CP debts after DOS.

1. Purpose – To pay debts

2. Reasons to Give or Withhold

a. Is it fair or reasonable?

b. Gifts or Agreements

c. “In lieu” of support?

d. Improvements as opposed to debts, do you give Dollar for Dollar value or just the cost.

vi. Watts Credits. (1985) 171 CA3d 366. A credit or reimbursement claim sought by the out-spouse on behalf of the community for the other spouses use of C.P. after separation - usually the family residence - at a below rental market rate or at no rate at all, i.e. if there were no payments due on the property.

1. Purpose – Reasonable Value of use of the asset.

2. Reasons to Give or Withhold

vii. When to Decide.

1. Date of Trial

2. At an O.S.C. hearing

3. Warning to litigants

viii. Education and Training. How many ever get these? §2641. The C.P. is entitled to reimbursement for educational expenses

ix. Effect on Support. Is there any? What if there is a humungous amount to be paid?

d. Rules of Contribution. Where S.P. is converted to C.P. during the marriage by a change in title. Is there a right to reimbursement? (§2581)

i. There is a C.P./J.T. Title presumption.

ii. The presumption applies to S.P. converted to J.T. during the marriage.

iii. If a writing showing transferor to maintain S.P. interest the presumption that the entire asset is C.P. is rebutted. (§§850-853).

iv. If presumption is not rebutted then reimbursement is peer §2640 for traceable S.P. contributions.

v. Reimbursement=FMV of S.P. at the time of the conversion to J.T. – Less encumbrances and non-gift C.P. contributions to principal before conversion.

e. Rules of Transmutation: Absent statutory exceptions or specific actions by the parties the form of title at the time of acquisition will dictate the character of the property.

i. §850, eff. 1/1/85 permits the following;

1. S.P. to C.P.

2. C.P. to S.P.

3. S.P. to S.P.

ii. Must be in writing.

iii. Pre-1984 transmutations – oral transfers, equitable arguments and estoppel may still apply. (See Hall v.Hall (1990) 222 CA3d 578)

iv. Title Presumptions

1. Est. of MacDonald (1990) 51 C3d 262.

2. Evid. Code 662.

a. Presumption of Title.

b. Clear and convincing evidence to rebut. Estate of Weaver (1990) 224 CA3d 478

v. Other Formalities

1. §852 Writing required even if writing is sufficient the transfer may be subject to challenge.

2. Haines (1995) 33CA4th 277

3. The competence of spouses to engage in transactions with each other is subject to fiduciary standards.

4. There exists presumption from confidential relationship that superior party who obtained a benefit must affirmatively prove compliance with equitable requisites.

5. Baltines (1989) 212 CA3d 66.

6. Donative intent does not bar reimbursement for SP after 1/1/85.

7. Witt (1987) 197 CA3d 103.

vi. Forms of Writing. The writing requirement applies to both real and personal property and is strictly enforced. No extrinsic evidence. No ambiguities. Campbell (1999) 74 CA4th 1058.

1. Deeds are golden

2. Slips of paper, are they enough?

3. Wills, does it meet present intent?

4. A technically insufficient transfer will not do and the parties intent is not material per Mc Donald.

vii. §2581. Presumption that Joint Tenancy property is C.P. absent a transmutation. This is a far-reaching presumption attaching to all property acquired by the parties during marriage in a joint form. (1/1/87).

viii. It is rebutted only in writing.

ix. It defeats survivorship interest unless death prior to status judgment or up to four years after status taken without a property division.

x. Query – Gift

1. What formalities required.

a. Gifted property is SP.

b. Joint gifts are ½ each persons S.P., however, that is in joint form therefore it’s C.P. subject to a §2640 reimbursement.

2. Burden of Proof

3. New Case on gifts

a. Those that claimed “Investment Jewelry” were right all along. The Liz Taylor exception. §852(c).

f. Fiduciary Obligations One to the Other

i. How Created?

1. Agreements

2. The marital relationship

3. By Law

a. §1100 Management & Control.

Each spouse has the power of disposition over C.P. personal property. Can’t gift it away without the other spouses consent.

b. §§721 Constructive Trust.

c. One spouse may manage the C.P. business without getting written consent each time there’s a transaction.

d. Each spouse shall act as in a fiduciary relationship. This means there is a duty of full disclosure of all material facts and information as to all assets and debts.

4. §1101 Remedies for trust Violations.

5. §2104, 2105 require complete and full disclosure of all debts and property. Failure to do so may result in a set-aside of the judgment or portions of the judgment.

6. Penalties 50%, 100%

7. Recent Lottery case?

ii. Diclosures and Set Asides

Tying it All Together in Trial

a. Evid Code 450, 451, 452 & 730. Judge presumed to know the law. How much can an expert or a special master do in telling you how to divide the property.

. The Rules of Tracing

i. Tracing is technique, not law. It is a way to get two evenly divide columns when community and separate property and funds have been joined together or commingled.

ii. For example under §2640 you are absolutely entitled to a reimbursement TO THE EXTENT YOU CAN TRACE THE CONTRIBUTIONS.

iii. Methods:

1. Direct Tracing

a. Chronological Records

b. Each step or transaction traced

c. Each element supported with proof

d. Level of Proof – Oral v. Written

e. Evidentiary rules

f. Query Bankruptcy

2. Family Expense Method

a. Presumption that family expenses are paid by the community funds, not the S.P. funds.

b. ie. Money left over is impliedly S.P.

c. ie. The family SUV was paid for at a time when all COP funds were exhausted

d. Must be actual proof of S.P. expenditure with real records. Cannot be simply a total of all income and all expenses – therefore it must be my property.

e. Query – Quasi C.P. and S.P..