Family Code Section 850 states that “Subject to Sections 851 to 853, inclusive, married persons may by agreement or transfer, with or without consideration, do any of the following:
(a) Transmute community property to separate property of either spouse.
(b) Transmute separate property of either spouse to community property.
(c) Transmute separate property of one spouse to separate property of the other spouse.”
So, what exactly does this mean?
In California, separate property is property that is acquired before marriage, or during marriage by gift, bequest, devise, or inheritance. Separate property is also generally that which is acquired after the date of separation. Community property is property such as income that is earned during the course of the marriage. Once married, separate property usually stays separate property and community property stays community property unless the parties formally agree to change its character, also known as a transmutation. “Comingling” separate property with community property is another way this can occur.
A transmutation is basically a change in character of one’s marital or separate property. Just like one can change the character of their separate property into community property, it is also possible to change community property into separate property.
This gets tricky where one spouse uses their separate property to make improvements to the community home. The non-contributing spouse may think that this is considered a gift and that they hold ownership to this new monetary interest in the home. However, the contrary is true. Unless the contributing spouse puts in a signed legal writing that they are giving up their separate property interest in this contribution, the non-contributing spouse holds no interest; and in the event of a divorce the contributing party can seek reimbursement. So, if a spouse uses their separate property money to put an addition on a house owned by the married parties, that spouse may be able to seek reimbursement in the event of a later break-up.
Likewise, the spouses may use community funds towards the acquisition or improvement of a spouse’s separate property, say a rental home that was owned prior to marriage. Upon divorce, the spouse who owns the rental property may errantly refuse to reimburse the community for its contribution, thinking that it was gifted to them. In fact, unless the spouses agreed in a signed writing that the funds were truly a gift and that they specifically intended to change the character of the contribution from community property to the separate property of the spouse owning the rental home, the marriage is likely subject to reimbursement.
If you need help evaluating whether you owe or are owed money from your divorce, it is highly recommended you contact an experienced family law attorney to do a thorough evaluation of your assets.
Authored by IRWIN & IRWIN.
IRWIN & IRWIN Family Law is located in Fullerton, California. We provide a full suite of family law services from divorce litigation, divorce mediation, child custody issues, domestic violence restraining orders and representing minors in court. “Every situation is different, and some come with very complex financial issues. Our legal team is here to support you during a very troubling time and prepare you for court, or to at least help negotiate or mediate the issues to establish an equitable legal resolution,” says Kelly Irwin, Senior Litigator at the firm.