What is a Transmutation Agreement?
California is a community property state, meaning that all property acquired after marriage is equally shared between both spouses. There are both prenuptial and postnuptial agreements that can protect spouses’ individual property. Here’s how to form a transmutation agreement in California.
A transmutation agreement is a type of postnuptial agreement, meaning the arrangement is agreed upon after marriage. It is made between both spouses to change the status of one specific piece of property. Property can be converted from separate property, which is usually acquired before marriage, or community property which is acquired after marriage. There are three ways a transmutation agreement can function:
- A spouse may transfer their separate property to the community property.
- A spouse may transfer a piece of community property to the other’s separate property.
- A spouse may transfer a piece of their own separate property to the other’s separate property.
What Distinguishes Community Property from Separate Property?
California Family Code Section 760 defines community property as “all property, real or personal, wherever situated, acquired by a married person during the marriage.” Although this excludes any specifications that may come from a prenuptial or a postnuptial agreement, essentially all property accumulated during marriage is shared equally between both spouses.
California Family Code Section 770 defines separate property as “(1) all property owned by the person before the marriage; (2) all property acquired by the person after marriage by gift, bequest, devise, or descent; [and] (3) the rents, issues, and profits of [this] property.” Conversely, separate property is all property accumulated by an individual before marriage or received as a gift or inheritance during marriage.
There are important distinctions in how each property can function in marriage. Separate property can be disposed of or transferred without the consent of the other spouse in a marriage. In contrast, community property disposal requires both spouses’ consent. Finally, in the case of divorce, separate property remains the sole property of the individual spouse. Community property will be divided equally in the event of divorce.
How to Create a Transmutation Agreement
To form a transmutation agreement with your spouse, there are certain requirements by California law that must be followed in order for it to be legally valid. According to California Family Code Section 852, a transmutation agreement must:
- Be a written agreement,
- Contain an express declaration with the intention to transfer the status of property, and
- Be signed by the spouse whose property is in question.
If these three requirements are not met, this agreement is not enforceable by law. This agreement will also be binding at the time of divorce or legal separation if it were to occur.
How to Challenge a Transmutation Agreement
Transmutation agreements are enforceable by California law, however, there may be instances where the agreement was not created under legal circumstances. If a spouse signed the agreement in unjust circumstances, then they can challenge the agreement later in court. Additionally, the court strikes the agreement if they believe it is not equitable.
A court is justified in dissolving a transmutation agreement if the situation meets either of these specifications:
- A spouse believes that the agreement was obtained through undue influence, coercion, duress, or deceit;
- A court decides that the agreement is giving one spouse an economic advantage at the expense of the other spouse.
If the agreement is contested, then the spouse receiving the property must overcome the presumption that it was obliged to because of undue influence. This spouse must be able to prove to the court that:
- The transfer was made independently and on the own free will of the spouse wishing to reduce their economic advantage,
- The transfer was made with complete knowledge of all relevant factors pertaining to the agreement,
- The transfer was made with full comprehension of the purpose and results of the transfer.
If you or a loved one have any more questions about how to form a transmutation agreement in California, contact us. Get your free consultation with one of our California Divorce Property Division Attorneys in California today!