Quit Claim Deeds Transmuting Property
Quit Claim Deeds Transmuting Property describes an area of Family Law whereby one spouse wishes to claim a property divesting the other spouse of all interest.
Before we discuss the effects of a transmutation and how a quit claim deed effects real property we need to first explain the concept of community property. Community property is any asset or debt incurred during the course of the marriage. With some exceptions, anything obtained by the parties from the moment they enter into the marriage to the date of separation is community property equally owned by the parties. The exceptions is property acquired before marriage by either party, anything inherited by either party, or any gift received by either party during the marriage. Everything else is community property.
The Quit Claim Deed
A problem often arises when spouses change the title to property using a quit claim deed and then, during the divorce, the party who has the property titled in their name claims it as their separate property. The spouse making this claiming that a transmutation has occurred making a community assets their separate property.
Under California Family Law, a “transmutation” occurs when the spouses have changed the character and nature of a community or separate property asset or debt from separate property to community property or from community property to the separate property of one of the spouses. A transmutation can be a transfer of separate property to community property; community property to separate property; or, one spouse’s separate property to the other spouse’s separate property.
Family law is woefully complex and transmutations make it even more so. However it is a critical part of family law issues due to transmutations occurring inadvertently when the parties did not intend to give up or waive an interest in property they owned before or during marriage. Remember it is the intent as of the date of the alleged transmutation, not what one of the parties intended subsequently. Unfortunately this is what commonly happens.
Transmuting a House
A common situation is where a house is purchased during the marriage, and is in the name of both parties. This is clearly community property. However, during the marriage, the parties would like to take advantage a lower interest rate or to take equity out of the home and decide to refinance the property. Unfortunately, one of the spouse’s credit score is not good enough to qualify for the refinance and they sign a quit claim deed transferring the property to the other spouse. One spouse is taken off the title and the other spouse now holds title in their name alone. The result is that a transmutation has occurred such that the home is no longer community property but instead is the separate property of one spouse.
For there to be a valid transmutations, there must be a written declaration signed by the spouse whose interest was affected stating that the adversely-affected spouse signed the document voluntarily, with full knowledge of all related facts and with knowledge of the legal effects.
Keep in mind that where there is a transmutation that results in one spouse obtaining an advantage at the expense of the economic interests of the other spouse, a presumption arises that the transaction is invalid due to undue influence.
To be valid for a transmutation, 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 must contain the express declaration right on the face of the deed so it is clearly noticeable and clear. A quit claim deed 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 an argument for a transmutation.
Furthermore, where a 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. In California the transmutation law was created to ensure that spouses are protected from the other spouse. This gives rise to the concept of a spouse’s “Fiduciary Duty.”
A spouse has a fiduciary duty to the other spouse, which means that they are not permitted to take advantage of their spouse in property dealings. When an asset is transmuted during marriage without consideration (i.e. without compensation for the fair value), the transmutation is presumed invalid. The party claiming validity of the transmutation must rebut the presumption of undue influence.
All interspousal property agreements, including transmutations, must meet fiduciary standards. The fiduciary standard is a duty each spouse owes to the other spouse of up most good faith and fair dealing. Each spouse has an obligation to the other spouse to maximize assets to the benefit of both of them, and not to take economic advantage of the other spouse. Because of the fiduciary standards, where a transmutation unfairly takes advantage of one spouse, it is presumed to have been induced by undue influence. If a spouse tries to enforce that agreement, the benefitted spouse has the burden of proving the transmutation which benefits him/her is valid by overcoming 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 burden is on the advantaged spouse to prove: (1) The transfer was made freely and voluntarily; (2) The transfer was made with full knowledge of all the facts; and, (3) The transfer was made with a complete understanding of the legal effect of the transfer.
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