Spouses often execute deeds between themselves for property. They want to protect the property from lawsuits and creditors, they want to refinance and have to get around bad credit problems, they want to avoid probate, etc., etc. These transfers are all fine and dandy until there is a divorce.
Consider Christina and Muriel. Christina filed a petition for dissolution of her 11-year marriage to Muriel in October 2009. At the time of trial in 2011, Muriel was a 77-year-old retiree living on veterans’ and Social Security payments. Christina was 60 years old and working part-time as a preschool teacher. Muriel owned a house in Berkeley when he first met Christina. In 1998 they got married (when Muriel was 64 and Christina was 47). On May 20, 2003, Muriel executed an interspousal transfer deed (the deed) that purported to “GRANT and TRANSMUTE” the property to Christina as her “sole and separate property.” In the deed, Muriel retained a “lifetime personal right of occupancy” in the property pursuant to a separate “Agreement Regarding Occupancy and Will” between the parties (the agreement). The agreement was executed contemporaneously with the deed. A recital in the agreement stated that Muriel was transferring the property to Christina “because of deteriorating health, and, among other things,” to allow Christina “to be able to manage [the property] in the event [Muriel] is no longer capable of participating in transactions involving [the property].” In addition, Muriel intended by the transfer to avoid probate of the property.
Under the terms of the agreement, Muriel granted his interest in the property to Christina as her separate property. He retained a lifetime right to occupy the property, although Christina was granted a limited right to lease it if Muriel was admitted to long-term nursing care. Christina was precluded from selling or transferring the property during Muriel’s lifetime to any person other than Muriel’s descendants. At Muriel’s death, the restraints on Christina’s use of the property during her life were removed, but she was required to devise the property, or the cash equivalent, to Muriel’s descendants pursuant to a quoted provision in her will.
At trial evidence came out that the transfer was driven by a desire to protect the property from creditors and to avoid probate. The trial court declined to find a transmutation of the property, ruling, “reading all the [transaction documents] as a whole, the Court finds that [Muriel] did not intend to change the ownership and characterization of [the property] from himself to [Christina].. . Accordingly, the court declared the property to be Muriel’s separate property and ordered Christina to reconvey the property to him. On appeal Christina contends the family court erred in finding no transmutation of the property to her separate property.
The trial court decision is reversed. The Appellate Court writes that the law relating to spousal transmutations of property was well summarized in In re Marriage of Lund (2009) 174 Cal.App.4th 40 (Lund):
“ ‘[M]arried persons may by agreement or transfer, with or without consideration, . . . [¶] . . . [¶] . . . [t]ransmute separate property of either spouse to community property.’ ([Fam. Code,] § 850.) ‘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.’ (§ 852, subd. (a).) ‘[A] writing signed by the adversely affected spouse is not an “express declaration” for the purposes of section [852, subdivision (a)] unless it contains language which expressly states that the characterization or ownership of the property is being changed.’ [Citation.] Section 852, subdivision (a), does not ‘require use of the term “transmutation” or any other particular locution.’ [Citation.] However, ‘[t]he express declaration must unambiguously indicate a change in character or ownership of property. [Citation.] A party does not “slip into a transmutation by accident.” ’ [Citation.]“ ‘In deciding whether a transmutation has occurred, we interpret the written instruments independently, without resort to extrinsic evidence. [Citations.] Under the circumstances, we are not bound by the interpretation given to the written instruments by the trial court.’ ” (Lund, supra, 174 Cal.App.4th at p. 50.)
The trial court’s finding of no transmutation was in error for at least three separate and independent reasons.
First, the various transaction documents satisfied the statutory requirement of an express and unambiguous written declaration of a change in the character of the property, signed by Muriel, and the court was required to give effect to this language. The first such declaration was the deed, which stated in no uncertain terms, “MURIEL E. MITCHELL, a married man (“GRANTOR”), hereby FOREVER GRANTS and TRANSMUTES to his wife, CHRISTINA RAMIREZ-MITCHELL, a married woman (“GRANTEE”), as her sole and separate property, all of GRANTOR’S right, title and interest in and to [the property].” A clearer statement of intent could not be given. There is no dispute that the real property referred to in the deed is the property, nor is there any dispute about the authenticity of Muriel’s signature, which he acknowledged at trial. If that were not enough, the agreement also states, “[Muriel] concurrently with this agreement grants [Muriel’s] interest in [the property] to [Christina] as [Christina’s] sole and separate property.” Finally, the letter from Clarke to the couple, which both countersigned as “[r]ead, understood, and agreed,” states, “Muriel has decided to gift the title to his residence to Christina . . . .” Any one of these alone likely would require the finding of a transmutation. Together they are irrefutable.
Virtually indistinguishable is In re Marriage of Holtemann (2008) 166 Cal.App.4th 1166. As part of their estate plan, the Holtemann couple entered into an agreement under which certain items of the husband’s real and personal property were transmuted to community property. An irrevocable trust agreement executed by the parties confirmed the transmutation. (Id. at pp. 1169–1170.) In response to the husband’s argument that the transmutation agreement should not be enforced because it was intended to implement an estate plan, rather than a dissolution, the court held, “The Transmutation Agreement and Trust at issue in this case establish that [the husband] intended to, and did, transmute from separate to community property that which was identified in the incorporated exhibit. The Transmutation Agreement unambiguously states that ‘Husband agrees that the character of the property described in Exhibit A (including any future rents, issues, profits, and proceeds of that property) is hereby transmuted from his separate property to the community property of both parties.’ (Italics added.) . . . As the trial court aptly noted, ‘[a] clearer statement of a transmutation is difficult to imagine.’ [¶] . . . [¶] . . . Regardless of the motivations underlying the documents, they contain the requisite express, unequivocal declarations of a present transmutation.” (Id. at pp. 1172–1173.) As a result, the court upheld the transmutation.
The same logic was applied in Lund, to reject an argument similar to the “intent” argument raised here: “ ‘[T]he motivations underlying the documents’ are irrelevant; the relevant question is whether ‘they contain the requisite express, unequivocal declarations of a present transmutation.’ It simply does not matter that the agreement, the Trust, and the wills were all executed together as part of a single ‘estate planning’ strategy. . . . [A]ll the ‘estate planning’ documents show is the parties had a comprehensive estate plan which would operate to provide the surviving party with tax benefits had the marriage survived until the death of the other party. The ‘estate planning’ documents do not have any bearing on whether the agreement at issue contains the ‘requisite express, unequivocal declarations of a present transmutation.’ ” (Lund, supra, 174 Cal.App.4th at pp. 52–53.) Again, the Lund court enforced an unequivocal declaration of transmutation. Because the deed and agreement were executed by Muriel and contain “ ‘express, unequivocal declarations of a present transmutation,’ ” the transmutation to Christina’s separate property must be given effect.
Second, the transaction documents contained a deed by which Muriel granted the property to Christina. The terms of an unambiguous deed cannot be contradicted by parol evidence. (French v. Brinkman (1963) 60 Cal.2d 547, 552 [“ ‘if the language of a deed is plain, certain and unambiguous, neither parol evidence nor surrounding facts and circumstances will be considered to add to, detract from, or vary its terms or to determine the estate conveyed’ ”]; Scruby v. Vintage Grapevine, Inc. (1995) 37 Cal.App.4th 697, 702 [same].) The family court’s invocation of the various transaction documents to contradict the plain and unambiguous terms of the deed violated this fundamental principle, effectively invalidating the deed without any evidence of a recognized defense to its enforcement.
Third, the family court erred in concluding the transaction documents reflect an “intent” not to work a change in title. As stated above, three separate transaction documents plainly state Muriel is transmuting his interest in the property to Christina’s separate property. Because the intent of the parties to an agreement is determined objectively, by the plain meaning of unambiguous terms, Muriel and Christina must be deemed to have intended what they clearly said they intended in the transaction documents. (Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321 [“ ‘If contractual language is clear and explicit, it governs.’ ”].) Moreover, a transmutation in the character of the property was central to the success of the transaction. The testimony at the trial demonstrated three separate purposes for the transaction: to guarantee the property would eventually be inherited by Muriel’s descendants, to ensure Christina would not be evicted from the property by Muriel’s descendants during her lifetime, and to protect the property, upon Muriel’s death, from any claims by the state for reimbursement of his medical expenses. Without a transmutation, all three objectives would be frustrated. If Muriel retained his separate property interest in the property, it could be seized by the state to reimburse medical expenses upon Christina’s death and might not be inherited by his descendants. Alternatively, if the property was not seized by the state—for example, because Muriel did not incur Medi-Cal expenses—without the transmutation it would have been inherited by his descendants, who could then evict Christina.
Further, the agreement would have been pointless without a transmutation. If the property was not transmuted to Christina’s separate property, there would be no need for her to agree to leave it to Muriel’s descendants; as owner, he would have determined its disposition. Nor would Muriel be required to reserve a lifetime right of occupancy in the property without a transmutation, since as owner he would be entitled to exercise all rights in the property. Nor, for the same reason, would the various restrictions on Christina’s disposition of the property during her lifetime have been necessary in the absence of a transmutation. By finding no transmutation, the family court rendered the agreement a vain exercise.
The entire Appellate opinion can be read here.
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