Estate planning for married couples in California often involves making a clear distinction between community and separate property. Community property generally refers to any asset acquired by either spouse during the course of the marriage. Under California law, when one spouse dies, half of the community property automatically goes to the surviving spouse, while the other half is distributed according to the terms of the deceased spouse’s estate plan (or if there is no applicable plan, according to California’s intestate succession laws).
Wife’s Separate Property Not “Re-Transmuted” to Community Property
Any confusion or disagreement over whether a particular asset is community property should be resolved before one spouse dies. Otherwise there may be litigation over who actually owns the asset. Here is a recent example from Orange County.
This case involves the heirs of a now-deceased married couple. Each spouse had children from prior marriages. It is those children who became parties to the litigation.
The wife passed away first. At the time of her death, she held title to a rental property. The couple originally purchased the property together. But the husband later signed a quitclaim deed transferring sole ownership to the wife. The wife subsequently treated it as her separate property.
When spouses agree to convert community property into separate property, that is known as “transmutation.” Here, the husband’s daughter, acting as executor of his estate, claimed the deed was not a valid transmutation and that the rental property should be considered community property, meaning the husband’s estate was entitled to a one-half interest upon the wife’s death. The wife’s children understandably objected to this petition.
An Orange County probate judge ultimately ruled in favor of the wife’s estate—that is, the transmutation was valid and the rental property belonged solely to her. The husband’s estate appealed. The California Fourth District Court of Appeal affirmed the probate judge’s decision in an unpublished September 28 opinion.
On appeal, the husband’s estate did not actually challenge the lower court’s finding that the transmutation was valid. Rather, the appeal centered on whether the rental property “should be recharacterized as community property” because the husband had contributed funds to make payments on a line of credit secured by the rental property. The husband’s estate argued this transmuted the property back to community property.
The Fourth District disagreed. The court noted that had the spouses wished to “re-transmute” the rental property, they would have expressly done so during their lifetimes. After all, they clearly understood the transmutation process having done so once before. And nothing in the record before the court indicated the couple treated the rental property as anything but the wife’s separate property following the original transmutation. That said, the Fourth District agreed with the probate court that the husband’s estate was entitled to a reimbursement of approximately $18,000 for “community” funds spent on repaying the property loan.
Get Help From a California Estate Planning Attorney
If you and your spouse are considering making an estate plan, it is essential that you take stock of your community and separate property. An experienced San Diego estate planning lawyer can assist you. Contact the Law Office of Scott C. Soady today if you have any questions.