Two recent California court decisions have held that once a spouse has transmuted his or her separate property into community property, then that property is permanently considered community property, regardless of explicit language in the transmutation agreement to the contrary.
In both Marriage of Holtemann and Marriage of Lund, a husband agreed to transmute his separate property into community property because he wanted his wife to have access to it in the event that he died before she did. However when the parties divorced, the wife claimed that the husband’s separate property, pursuant to the agreement, was now community property. In turn, the husband argued that the agreement effected a valid transmutation only for estate planning purposes, and therefore was not effective for dissolution purposes.
Both courts held that there is no such thing as a transmutation of property for estate planning purposes only, regardless of language in the agreement that purported to condition the transfer upon the death of either spouse. Therefore, California courts have held that once separate property has been transmuted into community property, it is considered community property for all purposes, including dissolution.
Marriage of Holtemann (2008) 166 Cal. App. 4th 1166
A husband and wife entered into an agreement for the purpose of designating how their property was to be disposed of when they died. Specifically, the agreement stated that the husband was transmuting his separate property into community property. Although there was language in the agreement that alleged to have qualified or limited the transfer upon the death of either spouse, the appellant court held that the agreement effected a present transmutation of the husband’s separate property into community property. However, the court did note that the husband still retained his right to seek reimbursement for his contribution of separate property to the community estate pursuant to California Family Code §2640(b).
Marriage of Lund (2009) 174 Cal. App. 4th 40
A husband and wife signed a written agreement that transmuted the husband’s separate real properties into community property. The agreement further provided that it was a transfer of property only for estate planning purposes. The appellate court held that a valid transmutation of the husband’s separate property had occurred. The court reasoned that the husband had made an express declaration in writing of his unambiguous intention to transmute all of his separate property and therefore a valid transmutation had taken place notwithstanding the fact that the agreement did not use the word “transmutation.” Thus, the court effectively held that there is no such thing as a transmutation for estate planning purposes only.