Interspousal transfer deeds transfer property titles between spouses. Here’s everything you need to know about an interspousal transfer deed in California.
Interspousal transfer deeds are similar to quitclaims, yet provide certain benefits. However, there are risks associated with signing an interspousal transfer deed in California, as the benefits in areas – such as taxation – can end up backfiring.
How Can an Interspousal Transfer Deed Affect a California Divorce?
Transferring property using an interspousal transfer deed does not require special circumstances. Couples going through a divorce or experiencing financial hardships typically seek a transfer. California is a community property state, therefore, all property acquired throughout a marriage is evenly split during divorce proceedings.
Related: Community Property Laws in California
In 2018, the California appeals court ruled that interspousal transfer deeds can “transmute” property from communal to individual. This means that the title of a property can be transferred, and this is especially done in divorce cases.
Related: Transmutation of Property in a California Divorce
Legal Risks of Signing an Interspousal Transfer Deed in California
1. Taxation
A legal risk associated with interspousal transfer deeds in California is that if a transfer is not properly organized, it can be subject to taxation. This goes against the appeal of an interspousal transfer deed, as they are often used to avoid estate taxes. These taxes are especially negative to encounter as they are oftentimes unexpectedly received by the spouse who received the transferred property.
2. Divorce
Another legal risk associated with California interspousal transfer deeds is that if the deed is signed and the couple eventually divorces, the spouse without title or ownership will not have property rights or obtain proceeds from a potential sale. This is because the property is no longer jointly held after the divorce. This rule still applies in cases where a spouse contributed to property taxes and other house payments post signing the interspousal transfer deed.
3. Estate
Another legal risk associated with interspousal transfer deeds in California is that a spouse’s family may lose the potential to inherit portions of an estate, as the property is no longer in the possession of both spouses. This can be particularly difficult if there is a second marriage, as children could end up not having any ownership of a house initially bought with the other remarried parent.
Interspousal Transfer Deed vs. Quitclaim Deed
Quitclaim deeds work to transfer interest from one spouse to another when dealing with property. These differ from interspousal transfer deeds in that quitclaim deeds do not supply any guarantees related to property ownership, whereas interspousal transfer deeds are often used to avoid tax liability. In cases where title to property is transferred, transfer taxes are often imposed and property value is often reassessed. This leads to an increase in property taxes. Unlike quitclaim deeds, interspousal deeds are exempt from transfer taxes.
Related: Quitclaim Deeds in a California Divorce: The Basics
Can registered domestic partners in California use an interspousal transfer deed?
Registered domestic partners in California can use an interspousal transfer deed. In fact, interspousal deeds are often used between registered domestic partners for the purpose of changing real estate from or to community property. This can be accomplished by quitclaim deeds as well, but interspousal transfer deeds affect community property rights more directly.
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If you are seeking an interspousal transfer deed in California, contact us. Get your free consultation with one of our California Property Division Attorneys today!