In California, a divorcing couple’s community property must be split equally between them.  This is usually accomplished by a settlement agreement or by a Judge after trial.  However, before the Community Property can be divided up, it must be determined what is Community Property and what is not.  California Family Code Section 760 provides that “all property, real or personal, wherever situated, acquired by a married person during the marriage  . . .  is community property.”  This means that any asset or any debt that either spouse acquired during the time they were married is Community Property which then must be divided upon divorce.  Statutory exceptions are made to this rule for any inheritances or any gifts received by one spouse during the marriage.  If one spouse inherited property or received gifts intended for them as their separate property, then the presumption of Community Property does not apply and the inheritance or gift would remain the separate property of the spouse that received it. 

 

It is possible however for spouses to change Community Property into Separate Property or vice-versa.  This is called a “transmutation”.  Transmutations are governed by Family Code Section 852 which imposes requirements of what is required for a valid and enforceable transmutation of community property. Because of the duties spouses owe to each other, whenever an alleged transmutation results in one spouse obtaining an advantage at the expense of the economic interests of the other spouse, a presumption of undue influence arises against the advantaged spouse..  In such a situation, the advantaged spouse must overcome the presumption by “clear and convincing” evidence that the transmutation was not the product of undue influence. Section 852 requires transmutations to be supported and established by some kind of written express declaration that  is joined in, consented to or accepted by the spouse whose prior interest was adversely affected.  In order for there not to be undue influence, the declaration must show the spouse understands that they have a property right and that they are giving up that property right.  

 

So because of the presumption of community property, if a house is acquired during a marriage, it will be Community Property.  This presumption could only be rebutted by written proof such as a clear statement that the otherwise community property was intended by the spouses to be separate property belonging to only one of them as required by Section 852.  Even where there is such a writing that satisfies this section, an inter-spousal transfer still might not cause an effective or enforceable transmutation if it was made in violation of the fiduciary duties that spouses owe each other.

 

In some situations, a party comes into a marriage owning a house or with some other assets which they then  use to buy a house during their marriage.  IN such a situation where one spouses contributes their own separate property to the acquisition of Community Property, under Family Code Section 2640 that spouse is entitled to get their separate property contribution back upon divorce and before dividing up the community interest between the spouses.  In other situations where a house remains the separate property of one of the spouses during the marriage, community resources (which includes both spouse’s income during the marriage) may contribute towards mortgage payments or other expenses related to the house.  In such a case, the Community will acquire an interest in the separate property of the one spouse in proportion to its contribution towards the purchase or paydown of the loan.  This is known as a Moore Marsden interest and it is extremely advisable to have a family law attorney who can discern the separate interests from the community interests in the family home when this situation arises.