Quit Claim Deed Transmutation
The first consideration that will come into play for a quit claim deed transmutation is if the property was acquired during marriage. If so, the property is community property. Community property is any asset or debt incurred during marriage; from the date of marriage to the date of separation. The exception to this rule include anything acquired by either spouse before marriage, anything inherited or received as a gift by either spouse, and anything acquired after the date of separation. Everything else is community property.
So, what happens when the spouses change title to a house they purchased with a quit claim deed? Well, you can be sure that during the divorce, the spouse who has the property titled in their name will be claiming that the house is their separate property and not community property. Is this possible? Did spouse lose any interest by signing a quit claim deed? Was there a quit claim deed transmutation? Let’s see.
What is a Transmutation?
Family Code §852 states that a transmutation occurs where the spouses have changed the character and nature of a community or separate property asset. The change can be from separate property to community property, from community property to the separate property or from one spouse’s separate property to the other spouse’s separate property. There are three types of transmutations:
- Separate property to community property;
- Community property to separate property; and,
- Separate property of one spouse to the separate property of the other spouse.
In any situation the spouse taken off title may have no intention whatsoever to give up an interest in their the property, certainly at least not for purposes of a divorce. The spouse taken off the deed will argue that no quit claim deed transmutation occurred. And, of course, the spouse whose name is on the deed will claim that a a quit claim deed transmutation occurred.
Quit Claim Deed Transmutation Scenario of Events
A house is purchased by both spouses during their marriage and is deeded to both spouses – both spouse’ names are on the deed. The house was purchased during marriage and is community property. Now, during the marriage, the spouses want to refinance the loan on the house to take advantage of a better mortgage rate. However, they find out that one spouse’s credit score is not high enough to qualify for refinancing. The spouses get the bright idea to not use the spouse with the bad credit to qualify for the loan and the spouse with the bad credit signs a quit claim deed. The deed is now title in the name of the spouse with good credit. What has now happened is that one spouse has the house titled in their name while the other is no longer on the deed. Is this a quit claim deed transmutation? Not necessarily. How the spouse whose name is no longer on the deed lost all interest in the house? Not likely.
How does Undue Influence Affect Transmutations?
A quit claim deed transmutation that results in one spouse obtaining an advantage over the other spouse creates a presumption that the transaction is invalid due to undue influence. Family Code §852(a) states that the spouse giving up his or her rights to property must expressly acknowledge in a declaration that they join in, consent or accept the transmutation. What this means is that in order for there to be no undue influence, the spouse must understand that they are giving up a property right. This express declaration cannot be oral. This express declaration must be in writing. It must contain clear language that the spouse understands they have a right to the property and that they are knowing giving up that right. In order for there to be a transmutation by quit claim deed as to real property, the quit claim deed transmutation must contain the express declaration right on the face of the deed so it is clearly noticeable and clear. A quit claim deed transmutation from two spouses into the name of one spouse with no other language supporting the transfer or stating that the property is to be the separate property of the other spouse does not support a transmutation argument or satisfy Family Code §852.
Furthermore, even if a quit claim deed transmutation is made and contains an express declaration, it is not automatically valid. All that has successfully been completed at this point is a change in title and satisfying Family Code §852. In California the transmutation law was created to ensure that spouses are protected from the other spouse which gave rise to the concept and consequential statutes of “Fiduciary Duty”.
A spouse’s fiduciary duty is found in Family Code §1100 which states: each spouse has a duty to act in accordance with the general rules governing fiduciary relationships in the management and control of community property until such time as the assets and liabilities are divided by the parties or a court. This duty includes the obligations to make full disclosure to the other spouse of all material facts and information on the existence, characterization, and valuation of assets in which the community has and to act with fiduciary responsibility in all transactions regarding management and control of community property.
In short, this means that one spouse cannot take advantage of their spouse in property dealings. Furthermore, when an asset is transmuted during marriage without consideration (i.e. without compensation for the fair value), the quit claim deed transmutation is presumed invalid. The party claiming validity of the quit claim deed transmutation must rebut the presumption of undue influence.
Rebutting the Presumption of Undue Influence
In order to rebut the presumption of undue influence three things must be shown. The advantaged spouse must show:
- The transfer was made freely and voluntarily;
- The transfer was made with full knowledge of all the facts; and.
- The transfer was made with a complete understanding of the effect of the transfer.
This is an uphill battle for the advantaged spouse who maintains that the transmutation of community property and quit claim deed is valid. The spouse holding titled must submit evidence regarding the transfer, timing of the transfer, and intentions and understanding of the spouses at the time of the transfer.
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