Sometimes Diamonds are Not Forever

California is a community property state, which means that all property acquired during marriage by either spouse is presumed to be community property.  Conversely, any property acquired by a spouse before marriage, by gift or inheritance during marriage, or after separation is presumed to be the acquiring spouse’s separate property. However, it is possible for a spouse to change the character of an asset by transmuting a community property asset into one spouse’s separate property, or vice versa.

Generally speaking, to qualify as a valid transmutation, there must be an express written declaration made, consented to, or joined in by the spouse whose interest in the property is adversely affected. These strict requirements were enacted to avoid “he said/she said” situations where one spouse was presenting “pillow talk” evidence.

For example, a couple buys a car during marriage with community funds for the wife to drive. When the couple later divorces, the wife claims the car is her separate property because she was the only one who drove it.  Unless there is a written agreement signed by her husband stating that the car is her separate property, her argument will fail because there was not a valid transmutation.

This rule makes sense for expensive items, like a car. However, spouses give gifts to each other all the time, and requiring a written agreement for every birthday gift or anniversary gift would be impractical and somewhat annoying.  Imagine, “Dear Wife, Happy Anniversary! I love you so much. Here is a necklace that I am gifting you as your separate property.” Fortunately, the Family Code does not require an express written declaration for gifts such as clothing, jewelry, or other tangible items of a personal nature used solely or principally by the spouse receiving the gift unless the gift is “substantial in value taking into account the circumstances of the marriage.” In other words, an expensive gift to one spouse may be considered community property absent a transmutation.

In Marriage of Steinberger, 91 Cal. App. 4th 1449 (2001), the husband purchased a diamond ring and gave it to his wife on their fifth wedding anniversary with a card congratulating her on her recent promotion. The ring was worth at least $14,000.  At divorce, the wife argued that the ring was her separate property because her husband gifted it to her on their anniversary. The husband, however, argued that he purchased the ring as an investment for them both to enjoy, and that it was not his intent to give her the ring as her separate property.  He testified that the most expensive gift he had given her during the marriage was a Christmas gift card that cost a couple hundred dollars. The trial court found that the ring was a gift to the wife since it was tangible personal property.

However, the California Court of Appeal reversed the trial court’s finding. The appellate court reasoned that the ring was of substantial value considering the circumstances of the marriage, so the exception to the written declaration requirement did not apply.  Since there was no express written declaration, there had not been a valid transmutation, and the ring was a community asset that should have been divided equally upon divorce. When it comes to substantial gifts in California, formality takes precedence over informality.

If you have any questions about how your personal property or your last anniversary gift may be classified, feel free to contact our experienced family law attorneys at Lonich Patton Ehrlich Policastri for further information.

Remember that each individual situation is unique. While this post may detail general legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.