June 19, 2014

Transmutation - Community Property & Separate Property

When a married couple desires to write an estate plan, one of the first questions I pose, in non-legalese of course, is what constitutes community and what constitutes separate property from the marital estate. 

The reason for this question is because each spouse may devise up to 50% of the community property and 100% of their separate property in their estate plan. For example, if a home is purchased during marriage from the wages of both spouses, such would be considered community property. Each spouse may then devise up to 50% of the home to whomever they choose, including their spouse obviously.

Clients often ask if they can change the characterization of property. The answer to this question is yes. California law expressly authorizes a couple to change the characterization of property. Family Code §§ 850-853. The legal term for this is "transmutation."  

A practical approach is to use the word "transmutation" and reference Family Code § 852 so that any reader of the document knows the clear intent behind the document. 

As mentioned, the characterization of marital property is especially crucial when devising an estate plan. If a spouse received a house as an inheritance from their parent, they are free to devise the house to whoever they want. Of note, a gift received during marriage is considered separate property despite the fact that it was acquired during marriage. The other spouse has no right to object to this. The acquiring spouse could give the house to their spouse, their neighbor, their co-worker, Mickey Mouse, etc. Conversely, if the acquiring spouse decides to transmute the house from separate to community property, then the acquiring spouse may only devise 50% of the house. If the acquiring spouse decides to devise 100% of the house to their neighbor, the other spouse can validly object to this transfer.