{"id":664,"date":"2019-05-06T06:00:46","date_gmt":"2019-05-06T10:00:46","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=664"},"modified":"2024-04-25T23:21:05","modified_gmt":"2024-04-26T03:21:05","slug":"the-transmutation-of-real-estate-ownership-between-married-couples-in-community-property-states","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/the-transmutation-of-real-estate-ownership-between-married-couples-in-community-property-states\/","title":{"rendered":"The Transmutation of Real Estate Ownership Between Married Couples in Community Property States"},"content":{"rendered":"\n<div class=\"wp-block-image\"><figure class=\"alignright is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.deeds.com\/articles\/wp-content\/uploads\/2019\/05\/transmutation-of-real-estate-ownership-1024x538.png\" alt=\"Image of a married couple sitting on a bench looking at a very nice house. Captioned: Transmutation of real estate ownership between married couples.\" class=\"wp-image-665\" width=\"512\" height=\"269\" srcset=\"https:\/\/www.deeds.com\/articles\/wp-content\/uploads\/2019\/05\/transmutation-of-real-estate-ownership-1024x538.png 1024w, https:\/\/www.deeds.com\/articles\/wp-content\/uploads\/2019\/05\/transmutation-of-real-estate-ownership-300x158.png 300w, https:\/\/www.deeds.com\/articles\/wp-content\/uploads\/2019\/05\/transmutation-of-real-estate-ownership-768x403.png 768w, https:\/\/www.deeds.com\/articles\/wp-content\/uploads\/2019\/05\/transmutation-of-real-estate-ownership.png 1080w\" sizes=\"auto, (max-width: 512px) 100vw, 512px\" \/><\/figure><\/div>\n\n\n\n<p>If you are\nmarried and live in a community property state, you and your spouse may not\nthink about whether certain assets are community or separate property. The\nformer is generally all property acquired during the marriage, and the latter\nconsists of property owned by each spouse before they wed. Separate property\nalso includes assets inherited by one spouse or gifted to the individual. Say\none spouse inherited a house from their parents, and rent out the dwelling. The\nrent received by the inheriting spouse is considered separate property.<\/p>\n\n\n\n<p>Perhaps the\nmarital home is actually separate property, as one spouse owned it prior to the\nmarriage. Even though the spouses may share financial responsibility for the\nhouse, such as paying the mortgage and taxes together, or other expenses such\nas insurance and repairs, in reality the home belongs to just one of them. No\nmatter how much the non-owning spouse may contribute to the property\u2019s upkeep,\nit\u2019s not a marital asset. For fairness\u2019 sake, it may make sense to change the\nproperty from separate to community, via a process known as transmutation.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What\nis Transmutation?<\/strong><\/h2>\n\n\n\n<p>Under\nCalifornia\u2019s Family Code section 850, transmutation is \u201can interspousal transaction by which the\ncharacter of personal or real property is changed in one of three ways: from\nseparate to community, from community to separate, and from the separate\nproperty of one spouse to the separate property of the other spouse.\u201d &nbsp;<\/p>\n\n\n\n<p>Keep in mind\nthat every community property state has regulations regarding property\ntransmutation. For example, in California, a written agreement between spouses\ncan change property status. Such a written agreement doesn\u2019t have to state the\nterm \u201ctransmutation,\u201d a term which few outside of the legal community is\nfamiliar. Any agreement must make it clear that the property ownership status\nis changing. Both spouses must sign the agreement transmuting the real estate.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Transmutation\nby Mistake <\/strong><\/h2>\n\n\n\n<p>On the flip side, a couple can mistakenly bring about a transmutation. Perhaps the family home is community property and the owners decide they want to refinance it.\u00a0 The bad news is that one spouse has a low credit score, making refinancing either impossible or very expensive. In this situation, the spouse with poor credit can use a <a href=\"https:\/\/www.deeds.com\/quitclaim-deed\/\">quitclaim deed<\/a>, transferring their share of the property to the other spouse. Now they refinance the property at a reasonable interest rate, and once the refinancing is complete, transfer the property back to community property.<\/p>\n\n\n\n<p>Let\u2019s say\nthe couple never get around to transferring the property back to both of them.\nA few years down the road, one spouse decides the marriage is over and files\nfor divorce. Both are probably shocked to discover \u2013 and shocked is probably not the appropriate\nword for the non-owning spouse \u2013 that\nonly one of them owns the property as far as the law is concerned.<\/p>\n\n\n\n<p>This is\nwhere divorce lawyers may have a field day. When a property is transmuted and\nit ends up that one spouse is seriously advantaged over the other spouse,\ninvalidating the transaction is a possibility. That means it is up to the\nspouse who now legally owns the property and their attorney to prove no undue influence\noccurred. They must prove that the transmutation was voluntary on the part of\nthe other spouse and that both spouses were fully informed about the\ntransmutation and its effects. If the spouse wants to keep the transmuted\nproperty in the divorce, it is critical to prove that the other spouse was\nfully aware of the consequences of the transmutation when it was made.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Creating\nan Estate Plan<\/strong><\/h2>\n\n\n\n<p>Every couple\nshould have an estate plan in place. Those couples living in community property\nstates must pay special attention to how their property is characterized.&nbsp;\nWhen real estate is community property, each spouse has a 50 percent interest.\nWhen separate property is considered, the spouse with ownership has a 100\npercent interest, and the other spouse has zero.<\/p>\n\n\n\n<p>The spouses\nmay have a specific idea of whom they want to receive their assets when they\ndie, but if their real estate or other property is mischaracterized, their\nbeneficiaries may not receive what the individual thought was his or her\nassets. That is why it is essential that each spouse understand how their\nassets are titled, either as community or separate property and determine the\nstatus when putting together an estate plan.<\/p>\n\n\n\n<p>Estate\nplanning attorneys usually recommend that married couples transmute separate\ninto community property. &nbsp;One advantage is that the surviving spouse\nreceives a more beneficial tax basis concerning community property. When one\nspouse dies, their community property passes to the surviving spouse, and the\nproperty is valued as of the date of the late spouse\u2019s death. &nbsp;Should the\nsurviving spouse decide to sell the marital home not long after becoming a\nwidow or widower, they are unlikely to pay capital gains on the sale.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Revocable\nTrust Warnings <\/strong><\/h2>\n\n\n\n<p>More people\nare using revocable trusts as part of their estate plans. Their assets are\nplaced in the name of the trust, and they can continue to use, buy and sell\nsuch assets until death. At that point, the revocable trust usually becomes\nirrevocable, and cannot change.<\/p>\n\n\n\n<p>One thing\ncouples in community property states may not realize, and this is especially\ndangerous with DIY revocable trusts available online, is that transferring\nseparate property to a joint revocable trust does not make it community\nproperty. Should one spouse list their separate assets as community property\nassets for irrevocable trust purposes, that is not a legal transmutation. To\ntransmute the property, the written agreement stating that the property\u2019s\nstatus is changing is required.<\/p>\n\n\n\n<p>What happens\nif the transmutation takes place and separate property becomes community\nproperty as per the irrevocable trust, and the couple later decides to divorce?\nIn short, the property is separate no more, and the former owner of the\nseparate property must now divide it with the former spouse.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Hire\nSeparate Lawyers<\/strong><\/h2>\n\n\n\n<p>How can you\nensure your property is correctly characterized and how you should handle\nit?&nbsp; Legal counsel is needed, but not one lawyer for the couple. It is\nwise for each spouse to hire their own attorney, so they have someone advising\nand representing their specific interests. While this may cost more money in\nthe short-term, it can save time and trouble \u2013\nand finances \u2013 in the long run. When a\nspouse has separate counsel, arguing that they were overly influenced by their\nspouse or that they didn\u2019t know what transmutation entailed is more difficult.<\/p>\n\n\n\n<p>If a couple\ndoesn\u2019t want to go the separate lawyers route, their mutual attorney must\nreceive information in writing from both spouses that they were told they could\nhave conflicts of interest and should hire separate lawyers. Instead, they must\nacknowledge that they were warned of the risks and decided themselves to have a\njoint attorney. &nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Large\nAmounts of Separate Property<\/strong><\/h2>\n\n\n\n<p>When one spouse has substantial amounts of separate property, their lawyer will likely recommend establishing separate trusts for these properties along with a joint trust for community property. Not only does establishing such trusts make it crystal clear which property is separate and which is community, but there is less chance that separate properties are commingled with community assets. For either divorce or estate purposes, such trusts show exactly how each type of property is distributed.<\/p>\n\n\n\n<p class=\"has-small-font-size\">Reference:<\/p>\n\n\n\n<p class=\"has-small-font-size\">https:\/\/www.law.com\/therecorder\/2019\/04\/19\/whats-yours-is-mine-transmutation-in-estate-planning\/<br>\nhttp:\/\/www.thurmanarnold.com\/Practice-Areas\/Family-Law-Statutes-Page\/Family-Code-section-852-Requirements-for-Transmu.aspx<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you are married and live in a community property state, you and your spouse may not think about whether certain assets are community or separate property. The former is generally all property acquired during the marriage, and the latter consists of property owned by each spouse before they wed. Separate property also includes assets [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[77,71],"tags":[],"class_list":["post-664","post","type-post","status-publish","format-standard","hentry","category-community-property","category-general"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The Transmutation of Real Estate Ownership Between Married Couples in Community Property States - Deeds.com<\/title>\n<meta name=\"description\" content=\"If you are married and live in a community property state, you and your spouse may not think about whether certain assets are community or separate property.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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