A person with significant separate property assets and children from a prior marriage(s) may wish to secure their separate property assets when they get remarried to protect themselves and their own children when the marriage ends at death or divorce.
California is a community property state. Assets are characterized either as community property , i.e., belong equally to each spouse, or as separate property, i.e., belong to either spouse. These characterizations are important during lifetime (in the event of divorce or a creditor’s lawsuit) and at the death of a spouse (in determining inheritances).
In California, assets can be titled as tenants in common, joint tenancy with right of survivorship, community property, and community property with right of survivorship. Tenants in common or joint tenancy interests can either be community property or separate property.
California law generally presumes that all assets acquired by married people while married and domiciled in California are community property (section 760 Family Code). This general presumption is rebuttable by a preponderance of the evidence. The presumption applies during the couple’s lifetime and, specifically in divorce or creditor proceedings involving either spouse, but does not apply at death at which time the form of title controls (In re Brace (2020) 9 C5th 903).
Married couples often purchase their primary residence as joint tenancy with right of survivorship without knowing its legal implications at divorce or death. At death, the title of an asset controls and the asset belongs to the surviving spouse regardless of whether the asset is separate or community property.
The character of ownership interests in assets may be transmuted (changed) from community property to separate property, and vice versa. But doing so requires that the transmutation be in a writing, “made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” Section 852(a) Family Code.
Transmutations must be done carefully and fairly. Section 721 of the Family Code imposes, “a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.” Whenever one party gains an unfair advantage over the other, a rebuttable presumption arises that the transaction was the result of undue influence. Marriage of Delaney (2003) 111 CA4th 991, 996.
However, section 21385 Probate Code exempts transfers at death, “… between spouses by will, revocable trust, beneficiary form, or other instrument … .” Thus, at death transfers by the deceased spouse to the surviving spouse are exempted. Nonetheless, at death transfers to a non-spouse (such as a child) by a deceased spouse are still subject to the “good faith and fair dealing” requirement. This still protects the surviving spouse from unfair treatment by the deceased spouse.
In the recent (2021) Third District Court of Appeals decision in Estate of Benny M. Wall (68 Cal. App. 5th 168) a husband purchased a residence and took title as, “Benny M. Wall, a married man, as his separate property”. Mr. Wall purchased the residence using only his separate property money. After Mr. Wall died, his widow claimed that Mr. Wall told her that the house belonged to both of them. She claimed that she and her husband had intended to purchase the residence as joint tenancy but that her name was left off of title only due to re-financing. The Court of Appeals upheld the trial court’s decision for the widow because the husband had presumptively violated his duty to his wife in titling the asset as his sole and separate property.
Premarital and Post-marital property agreements offer a legal way to protect a spouse’s separate property interests that when done correctly may avoid the legal problems discussed above. Premarital agreements also have the advantage of not being subject to the “interspousal good faith and fair dealing” requirement. Such agreements require full disclosure of all assets and separate legal representation of each party.
The foregoing is not legal advice. Consult an attorney if confronting these issues. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.