Transfer of property between spouses will be discussed in this article from different points of view. First, we will discuss how and why spouses could transfer real property during the marriage. After that, we will discuss a more important aspect – what consequence such transfers would have during a divorce.
Transfer of property between spouses and divorce – what types of deeds
As you may know in order to transfer the property from a person/people/entity to another person/people/ entity you need a deed. When there is a transfer of property is between spouses, the most commonly used forms in California are quit claim and interspousal deed.
The most important thing you need to know about a transfer of property between spouses using a quit claim deed is although one spouse is giving up his/her rights to real property by signing quit claim deed, he/she still has liability for if there is lien or mortgage the property. If in the divorce judgment the family residence is awarded to one spouse without specifying anything about the mortgage and the other spouse transfer the residence using quit claim deed, there might be a situation that would entail liability if the spouse-owner is not paying the mortgage.
Transfer of property between spouses using interspousal deed is a stronger form to establish ownership rights and responsibility. Interspousal deeds are usually proper in divorce settlements and when during the marriage the couple would like to re-finance the family residence using one spouse’s ability ( credit score and other factors) to get a better mortgage rate.
Another situation when it is appropriate to use interspousal deed Transfer of property between spouses is when one spouse had a house before he get married and would like to add another spouse into the deed.
Quit claim deed could be used when one spouse would like to give away his/ her interest in the house. There are multiple reasons why spouses might want to do that and it is not a subject of discussion in this blog. However, an important point for the discussion here is the validity of the transfer of property between spouses during the marriage.
When Transfer of property between spouses is valid?
During the marriage, one spouse may transfer his separate property to another spouse as separate property or community property. Also, either spouse can transfer part/all of his community property interest to another spouse as his/her separate property. Such transfer does not refer to only real property. Such transfer call transmutation.
Before 1980 the Transfer of property between spouses could be oral. Please notice that generally when we are talking about transmutation. During transmutation, spouses can transfer any property, not only real property. However, the subject for the discussion in this article is the transfer of real estate between spouses.
There is an important issue that may arise during the divorce whether interspousal transfer grant deed or quitclaim deed is sufficient to be a valid transmutation.
As you might know, any kind of deed should be in writing, signed and the signature needs to notarize. Moreover, a deed should be reordered. However, even those formalities of executing a deed either interspousal or quit claim might not be always enough to show a valid transmutation.
Under Family Code § 760, any property acquired during the marriage is community property with some statutory exceptions.
If the couple bought a house together during the marriage and one of them give up his interest by quitclaim deed without additional writing, it might trigger the problem if the couple subsequently files for the divorce.
Family Code § 852, requires the Transfer of property between spouses to express a declaration from the spouse whose interest will be adversely affected.
As you might know, California law is based on statutory law and previous cases decisions. In some previous cases, the court held that an interspousal transfer grant deed did not contain enough language for a valid transmutation. Although CA Court of Appeals found that such transfers have to meet necessary requirements. Each situation should be considered separately because transmutation may be challenged by a showing of undue influence. Under family code section 721, spouses owe each other “a duty of the highest good faith and fair dealing,”. Undue influence means that one spouse is trying to take unfair advantage of another.
The bottom line, if there is a transfer of property between spouses which benefits you or your spouse during the marriage using an interspousal transfer grant deed or quitclaim deed you should get an attorney’s advice. It is especially important if at the time of transmutation you were already planning for divorce.
Additional Considerations for Transfer of Property Between Spouses in California
When transferring property between spouses, especially in the context of divorce, several additional considerations under California law must be taken into account. These factors can significantly impact the validity and consequences of such transfers.
Community Property vs. Separate Property
California is a community property state, meaning that any property acquired during the marriage is generally considered community property, equally owned by both spouses. However, property acquired before the marriage or through inheritance or gift is typically considered separate property.
Documentation and Intent
To clearly define the nature of property (community or separate), maintaining proper documentation is crucial. When transferring property between spouses, clearly state the intent of the transfer in the deed and ensure it meets all legal requirements.
Transmutation and Legal Requirements
Transmutation refers to changing the character of property from community to separate or vice versa. According to California Family Code Section 852, a valid transmutation must be:
- In writing.
- Expressly declared in a document made, signed, and acknowledged by the spouse whose interest is affected.
Any transfer of property between spouses that changes the character of the property must be explicit and documented properly.
Potential Challenges and Disputes
Undue Influence: Under California Family Code Section 721, spouses owe each other the highest duty of good faith and fair dealing. If one spouse exerts undue influence over the other during the property transfer process, the transfer can be challenged and potentially invalidated. Undue influence can occur if one spouse pressures or manipulates the other into signing a deed without fully understanding the consequences.
Fraudulent Transfers: If a transfer of property is made with the intent to defraud creditors or the other spouse, it can be deemed fraudulent. For example, if one spouse transfers property to the other to hide assets during a divorce, the court may set aside the transfer.
Protecting Your Interests
To protect your interests during the transfer of property, especially in anticipation of or during a divorce, consider the following steps:
Obtain Legal Advice: Consult with a family law attorney who can guide the legal implications of transferring property and ensure all documents are properly drafted and executed. An attorney can help ensure the transfer meets all legal requirements and can withstand potential challenges.
Use Clear and Detailed Language: When drafting deeds and other documents related to the property transfer, use clear and detailed language to specify the nature and intent of the transfer. This can help prevent misunderstandings and disputes later on.
Record the Deed: Ensure that the deed is properly recorded with the county recorder’s office. This step is crucial for the transfer to be legally recognized and enforceable.
Tax Implications
Transfers of property between spouses can have significant tax implications, including:
- Gift Tax: Transfers between spouses are generally exempt from federal gift tax. However, it’s important to document the transfer properly to avoid any issues.
- Property Tax Reassessment: Under California’s Proposition 58, transfers of property between spouses are excluded from property tax reassessment. This can help maintain lower property taxes.
Post-Divorce Considerations
After the divorce is finalized, ensure all property transfers are completed as per the divorce judgment. This includes:
- Updating Title Records: Make sure title records are updated to reflect the new ownership.
- Handling Outstanding Liabilities: Address any outstanding mortgages or liens on the property to avoid future disputes.
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