Community Property Summer 2018

Class #3 Notes

1. Last class, we learned that, under a premarital agreement, a man and a woman [not "a
husband and a wife" because they haven't married yet] can agree that, during the
marriage, the salary of each of them earned during the marriage is that salary
earner's SP.

Accordingly, under such a premarital agreement:

a. H's salary during marriage is his SP, and

b. W's salary during marriage is her SP.

2. A premarital agreement was the focus of last class

a. contract before marriage

b. contract between a single/unmarried man and a single/unmarried woman

3. A transmutation (sometimes transmutation agreement) is the focus of this class

a. contract after marriage

b. contract between spouses (between a husband and a wife)

c. legal duties and obligations between spouses are different from the legal duties
and obligations between a single/unmarried man and a single/unmarried
woman

i. we’ll study the legal duties and obligations between spouses later

ii. for now, understand that spouses have higher legal duties and obligations
to each other than single/unmarried people have to each other

iii. why do spouses have higher legal duties and obligations to each other?

A. they married each other

B. they are part of a marital unit

C. they’re supposed take care of each other

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 d. a transmutation is an agreement that changes the character of title to property
already owned by the couple or already owned by one of the spouses

i. a couple can transmute CP to H's SP

ii. a couple can transmute CP to W's SP

iii. H can transmute H's SP to CP

iv. W can transmute W's SP to CP

v. H can transmute H's SP to W's SP

vi. W can transmute W's SP to H's SP

4. From May 22, 2012, Atlantic Wire regarding Mark Zuckerberg, founder of Facebook:

As you probably know by now, Facebook CEO Mark Zuckerberg married his
college sweetheart, Priscilla Chan, this weekend; just one day after becoming a
billionaire 19 times over. . . . It was all very cute and romantic until everyone —
including The New York Times — noticed that by waiting until the day after
cashing in his fortune, Zuckerberg conveniently protected his billions from
California's communal property law. [Other sources note that Mark has an annual
salary of $1 from Facebook.—Why?]

a. Before marriage, Mark Zuckerberg owned Facebook stock in what kind of name?

b. Before marriage, Facebook went public, meaning (in simplified terms) the public
could now purchase shares of Facebook stock. After Facebook went public, Mark’s
shares were worth $19 billion. Again, this occurred before he got married. How did
Mark hold title to the Facebook shares before he got married?

c. Once Mark and Priscilla married—with no premarital agreement and with no

transmutation agreement, how does Mark hold title to the Facebook shares?

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d. Premarital is before marriage, and transmutation is after marriage.

e. A premarital agreement is before marriage and can address:

1. Any property that would be CP if CP laws applied is the earner’s SP

What is Mark Zuckerberg’s property that would be CP if CP laws

applied?

2. Any property at all—property that is SP could be deemed, while married,

to be CP

[The premarital agreement could provide that, once Mark and Priscilla
marry, one billion dollars from all of this property would be deemed
to be CP, but last class I discussed how, generally, premarital agreements
address property acquired when? _______________________.]

f. A transmutation agreement is after marriage and can address:

1. Any property already owned by one spouse is transmuted to the other

spouse

Mark Zuckerberg can take this specific $1 billion worth of Facebook stock
and transmute it to Priscilla’s SP—or to CP

g. Premarital agreement, because it’s entered into pre-marriage, is kind of future-

looking, looking ahead to future property/property that will be acquired in the
future marriage, once the marriage occurs

h. Transmutation agreement, because it’s entered into after the marriage occurs,
is kind of past-looking, looking back to property that is already owned right now,
during the marriage

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5. Rules for a transmutation occurring before January 1, 1985

Statements (not holdings) from Estate of Raphael

a. “The authorities previously cited indicate that the agreement of transmutation

may be of the most informal character.”

b. “The change in the status of the property may be shown by the very nature of the
transaction or appear from the surrounding circumstances.”

c. Courts generally look for an intent to effect a change in ownership.

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6. Rules for a transmutation occurring on or after January 1, 1985

A transmutation is “an interspousal transaction or agreement which works a change in the

character of the property”. [Haines, 39 Cal. Rptr. 23 at 683]

“interspousal” means: 1. during marriage [unlike premarital agreement]

2. between 2 spouses, excluding anyone else

“works a change” means: 1. the agreement itself must manifest a change in title

2. the agreement does not address the purchase of a

new asset but rather alters the form of title of one
asset

"character" means: 1. a couple can transmute CP to H's SP

2. a couple can transmute CP to W's SP

3. H can transmute H's SP to CP

4. W can transmute W's SP to CP

5. H can transmute H's SP to W's SP

6. W can transmute W's SP to H's SP

[The phrase "works a change in the character of the property" is codified in

Family Code section 850, which provides that married persons may by
agreement or transfer, with or without consideration, do any of the following:

(a) Transmute community property to separate property of either spouse

(b) Transmute separate property of either spouse to community property

(c) Transmute separate property of one spouse to separate property of the other
spouse]

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9. Family Code section 852(a) provides that 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.

Definitions:

"express declaration" means:

the transmutation must “expressly state that a change in the characterization or

ownership of the property is being made” [underlining added]

a. what must the express declaration indicate? see Marriage of Barneson

Husband instructed brokerage house to “transfer” his stock certificates to

his wife. The court held that the word “transfer” fails to expressly state
that the characterization or ownership of property is being changed.

Apparently, Husband was trying to transmute his SP stock

to his wife's SP stock. The court was very strict in requiring language
showing a "change in characterization of the property" or a "change in
owernship of the property."

b. After Marriage of Barneson, what language must appear to

be a valid transmutation? Stated another way, what language shows a
"change in characterization of the property" or a "change in ownership of
the property"?

No court has provided specific language, but we can guess

language along the following lines is acceptable:

"I, Harry Husband, own a $100 Bank of America checking

account as my separate property. I change the character of my separate
property checking account to be the separate property of my wife, Wilma
Wife.

[or alternative second sentence above: I change the ownership of my

separate property checking account to be the separate property of my wife,
Wilma Wife.]

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Estate of MacDonald also addresses what is required for an "express declaration."

asset discussed in the case was a retirement account

a. a retirement account, in general terms, is an account attributable to a

employee's work that holds assets until the employee retires, when the
employee withdraws money from the retirement account

b. a retirement account can provide that, upon the employee's death,

any assets remaining in the retirement account are to be paid to the
designated beneficiaries

c. retirement account was CP, and Husband changed the beneficiary

designation to name as beneficiaries his children from a previous
marriage, who are not the children of Current Wife—does Husband have
complete control over the retirement account?

d. issue before the court was whether the Current Wife transmuted her CP
interest in the retirement account to Husband's SP

language at issue in this case: “If participant’s spouse is not designated

as the sole primary beneficiary, spouse must sign consent. Consent of
Spouse: Being the participant’s spouse, I hereby consent to the above
designation.”

Acceptable language: “I am the participant’s spouse. I consent to the

foregoing beneficiary designation by the participant, giving to the
participant any interest I have in the funds deposited in this account.”

Why is the foregoing language acceptable? Does it refer to a “change in

ownership of the property from one spouse to the other spouse?

What language in the acceptable version refers to a “change in ownership

of the property from one spouse to the other spouse”?

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10. Family Code section 852(a) provides that 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.

a. who is the spouse whose interest in the property is adversely affected in:

i. transmutation from SP of one spouse to SP of the other spouse?

H's SP to W's SP?

W's SP to H's SP?

ii. transmutation from SP of either spouse to CP?

H's SP to CP?

W's SP to CP?

iii. transmutation from CP to SP of either spouse?

CP to H's SP?

CP to W's SP?

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11. Practical Lawyering

a. What if only one spouse signs the transmutation agreement? Who is

happy, and who is sad?

b. Hypo: H begs/pushes/pleads W for the transmutation of $100 of CP to be

H's SP. W agrees and signs a transmutation agreement in which $100 of CP is
changed to be H's SP.

H is so happy that W signed the transmutation agreement that H forgets to sign it.

Two years later, H and W divorce. To prepare for the divorce

proceedings, H goes to his file to look for the transmutation agreement. He
notices that he has not signed it.

c. Let's *not* focus on whether H has timely signed it. In other words,
maybe it's too late for H to sign it.

d. What I want to focus on is the fact that, after W signed the transmutation
agreement, is H happy or sad? Of course, he should immediately sign the
transmutation agreement, but that is totally within his control. H overcame
what is usually the most difficult step, which is getting the other spouse to agree
to the transmutation.

e. Once W signs and H has the transmutation agreement in his hands, H can
sign it at any time.

If a court says, “hey, Husband, you present this transmutation agreement as valid
because W signed it, but you haven’t signed it yet,” what does Husband say/do?

Husband ______________________________________________________.

If the court finds Husband’s signature is timely and the court accepts the
transmutation as valid, then is Husband happy or sad?

12. Exception for Tangible Articles of a Personal Nature (section 852(c))

A transmutation is not required to be in writing if the change in ownership relates to the

articles of a personal nature referred to in section 852(c) if the article is: (1) used solely
or principally by the spouse to whom the gift is made, and (2) insubstantial in value,
taking into account the circumstances of the marriage.

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13. policy question: why require an express declaration for a transmutation? see Estate of
Raphael and Marriage of Jafeman-- if there is no declaration, when do you fight about it?

14. Summary:

a. a transmutation agreement must be between spouses only--no third parties

b. generally, a transmutation agreement is made after acquisition of the property

c. the transmutation agreement has to refer to the property, so the property must be
in existence and owned by one of the spouses

d. the property must generally be titled in the name of one or both of the spouses

e. a transmutation agreement generally does not apply to an acquisition of

property

i. In re Summers: Husband and Wife purchased real property and signed

receipt of the deed.

ii. Title to the property on the deed from the third party sellers was:

“To Eugene Summers and Ann Marie Summers, Husband and Wife and
Aurora Summers, an Unmarried Woman, all as joint tenants.

Eugene Summers and Ann Marie Summers, Husband and Wife, hereby

accept the interest herein conveyed to them as joint tenants with Aurora
Summers, an Unmarried Woman.”

iii. The issue was whether signing the deed was a valid transmutation of CP
to joint tenancy property?

iv. The case addressed CP law we haven’t covered.

v. As to the limited issue of whether signing the deed was a transmutation,

the court concluded, essentially, that signing the deed was not a
transmutation.

A. The Summers did not first own property and

then change title or ownership of the property to something else.

B. There is no transmutation, only receipt of

title from the third party sellers.

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7. Outlining for exam: how do we convert the transmutation rules into a shortened
statement of law in element form?

Let’s review our relevant law:

Rules for a transmutation occurring on or after January 1, 1985

There are two sources of law:

1. A transmutation is “an interspousal transaction or agreement which works

a change in the character of the property”. [Haines, 39 Cal. Rptr. 23 at 683]

2. Family Code section 852(a) provides that 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.

Possible elements:
A transmutation must:
1. occur on or after January 1, 1985 [Haines]
2. be an interspousal transaction or agreement [Haines]
3. work a change in the character of the property [Haines]
4. must be in writing [FC section 852(a)]
5. must be an express declaration [expressly state a change in the characterization
or ownership of the property is being made] [FC section 852(a)]
6. must be made, joined in, consented to, or accepted by the spouse whose interest in
the property is adversely affected [FC section 852(a)]

What are similar?

2. be an interspousal transaction or agreement, AND
4. must be in writing
AND
3. work a change in the character of the property AND
5. must be an express declaration

You should combine the similar elements above, which reduces the definition of a
transmutation as follows:
1. Transmutation occurring on or after January 1, 1985
2. Interspousal transaction or agreement
3. Works a change in the character of the property
4. Made, joined in, consented to, or accepted by the spouse whose interest in the
property is adversely affected

For the exam, what statement should you use? Something like:
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 The rule is for a valid transmutation, it must: (1) occur on or after January 1, 1985,
(2) be an interspousal transaction or agreement, (3) work a change in the character of the
property, and (4) be made, joined in, consented to, or accepted by the spouse whose interest in
the property is adversely affected.

9. IRAC form:

Facts: On March 29, 2013, Harry and Wilma, who married on July 4, 2010, signed a
contract in which they agreed to change title to a painting held in the name of “Harry Husband
and Wilma Wife, as community property” to “Wilma Wife, as her separate property.”

The issue is whether there is a valid transmutation between Harry

and Wilma.

The rule is for a valid transmutation, the transfer must: (1) occur on or after January 1,
1985, (2) be an interspousal transaction or agreement, (3) work a change in the character
of the property, and (4) be made, joined in, consented to, or accepted by the spouse
whose
interest in the property is adversely affected.

There is [ELEMENT] because [FACTS

proving ELEMENT] .

Here, the transfer occurred on or after January 1, 1985 because

Harry and Wilma signed the contract on March 29, 2013, which is after January
1, 1985.

There was an agreement because

Harry and Wilma signed a contract, which shows that it was in writing.
The agreement was interspousal because
Harry and Wilma signed the contract on March 29, 2013, which is
after July 4, 2010, when they got married.

The transfer worked a change in the character of the property

because
they changed title to the painting from “Harry Husband and Wilma Wife,
as community property” to “Wilma Wife, as her separate property.”

The transfer was made by the spouse whose interest in the property was adversely
affected because
both Harry and Wilma were adversely affected because they both were losing
their community property interests in the painting, and they both signed the
transmutation agreement changing the community property title to
Wilma’s separate property.
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The conclusion is there was a valid transmutation between Harry
and Wilma.

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