Divorcing couples may have established revocable living trust for estate planning pusposes during their marriage which was funded primarily with assets acquired by one spouse prior to the marriage. The issue is what is the characterization of those property when the couple gets the divorce.
Transmutation is the changing of the characterization of a property from community to separate or vice versa. Family Code Section 852, subdivision (a) states the requirement for a valid transmutation to occur which provides: “A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” Our Supreme Court has interpreted “an express declaration” as language expressly stating that a change in the characterization or ownership of the property is being made. Estate of MacDonald, supra, 51 Cal.3d 262, 272, 272 Cal.Rptr. 153, 794 P.2d 911. “[A] writing signed by the adversely affected spouse is not an ‘express declaration’ for the purposes of [Civil Code] section 5110.730(a) [now Family Code § 852, subd. (a)] unless it contains language which expressly states that the characterization or ownership of the property is being changed.” ( Ibid.)
An “express declaration” does not require use of the terms “transmutation,” “community property,” “separate property,” or a particular locution. Estate of MacDonald, supra, 51 Cal.3d 262, 273, 272 Cal.Rptr. 153, 794 P.2d 911. For example, the language “I give to the account holder any interest I have in the funds deposited in this account,” is sufficient to establish transmutation. ( Ibid.) The express declaration must unambiguously indicate a change in character or ownership of property. In re Marriage of Koester (1999) 73 Cal.App.4th 1032, 1037, fn. 5, 87 Cal.Rptr.2d 76.) A party does not “slip into a transmutation by accident.” ( Ibid.)
Does one spouse’s separate property become transmuted into community property by virtue of being funded into the revocable trust established during the marriage?
One has to examine the trust document itself. A general provision in the parties’trust agreement establishing a revocable trust for estate planning purposes and stating that property transferred to the trust is community property unless either spouse as transferor identifies it as separate property is not itself effective to transmute separate property transferred to the trust to community property. Marriage of Starkman (2005) 129 CA4th 659, 661, 28 CR3d 639, 640 . In addition Family Code § 852(a) writing requirement in Starkman is not by a General Assignment (conveying all of the parties’ assets to the trust) or stock brokerage transfer forms transferring husband’s securities into the trust (but not describing them as separate or community).
However, a trust transfer agreement, even if executed only for estate planning purposes, effects a present transmutation when it includes language expressly stating the characterization or ownership of the subject property is being changed. Marriage of Holtemann (2008) 166 CA4th 1166, 1172–1173, 83 CR3d 385, 390–391. In Hotermann, the trust transfer agreement unambiguously stated assets listed in incorporated exhibit are “hereby transmuted” from husbands separate property to community property. Another example is in Marriage of Lund (2009) 174 CA4th 40, 51–54, 94 CR3d 84, 94–96 where the trust transfer documents unambiguously stated all of husband’s property was “hereby converted” to spouses’ community property and each had a “present, existing and equal interest therein”
The management and control of community property held in a revocable trust is subject to Family Code § 761 and Family Code § 1100(a). The trustee may “convey and otherwise manage and control” the trust property without either spouse’s joinder or consent unless the trust instrument expressly provides otherwise. In addition, except where the trust instrument expressly provides otherwise, either spouse acting alone may exercise the power of revocation. However, any power to modify rights and interests in the trust property during marriage may only be exercised with both spouses’ joinder or consent. Family Code § 761(a),(b) & (c)Marriage of Lund (2009) 174 CA4th 40, 54, 94 CR3d 84, 96.
For divorcing couple that have a revocable trust during their marriage, it is important to analyze the wording of the trust document to determine the proper characterization of the trust assets to be divided in the divorce case. It is therefore best to obtain the representation of an experienced divorce lawyer.
***
Attorney Kenneth Ursua Reyes was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, P.C. is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail [email protected]; Website kenreyeslaw.com.
(Advertising Supplement)
