Transfers of Community Property

California law protects a spouse’s undivided one-half interest in Community Property assets from wrongful actions taken by their other spouse. The same rules apply to Registered Domestic Partners.

What is Community Property? Property acquired while married and living together – excluding gifts and inheritances — is presumed to be Community Property and not either spouse’s Separate Property. Each spouse has an equal undivided one-half interest in Community Property assets.

Even when title is in one spouse’s name only, an asset remains Community Property. This can happen when one spouse uses marital earnings to purchase an asset. Only if the other spouse voluntarily and knowingly signs an express declaration to relinquish their Community Property interest does the asset become Separate Property of one spouse.

Generally speaking either spouse acting alone can control and manage Community Property assets. A spouse’s management and control of Community Property is subject to a Fiduciary Duty to act in the “highest good faith and fair dealing”. A spouse who takes any unfair advantage of the other spouse has breached the Fiduciary Duty.

Section 1101 of the Family Code allows a spouse to bring suit against the other spouse, or estate, for a breach of the Fiduciary Duty to not impair their spouse’s undivided one-half interest in Community Property assets.

A spouse cannot gift the couple’s Community Property assets without the written consent of the other spouse. Gifts by one spouse alone can by revoked by the nonconsenting spouse. Nonconsenting spouse has three years from discovering the gift to bring legal action if pursued during the marriage while both spouses are alive. However, as discussed below, the three year limitation does not apply when the nonconsenting spouse sues after the death of their spouse or in a marital dissolution proceeding.

In Francine S. Yeh v. Lie-Cheng Tai et. al. (December 2017), the California Second District Court of Appeal decided a case brought by a surviving wife against the Trustees of her deceased husband’s trust estate for his breach of the Fiduciary Duty. While alive the husband had persuaded his wife to transfer title to a residence they had purchased into his name only on the grounds that he could then obtain lower interests rates on the mortgage using his credit alone. The husband promised that the wife would maintain her one-half interest in the residence and later be restored to title. The loan was paid-off using the couple’s community property money.

Three days prior to his death, the husband assured his wife that her name was on the title and that the property would be all hers. In fact, however, Mr. Lie had secretly transferred title to the residence into a living trust naming other persons as beneficiaries. Thus the husband had taken away the wife’s one-half undivided Community Property interest.

The defendants claimed that the wife’s lawsuit was untimely because it was brought more than one-year after the husband’s death. Generally speaking most claims against a decedent’s estate must be filed within one year of the decedent’s death.

The court, however, instead agreed with the wife: The general rule did not apply because Section 1101 specifically allows a spouse to bring a claim for breach of the Fiduciary Duty either at the time of a dissolution proceeding or, as in this case, after the other spouse’s death. Only if the case was so delayed to cause an unfair prejudice to the defendants could the defendants object based on timeliness.

Furthermore, even a spouse who has silently suffered a wrong to his or her community property interest during the marriage – but has not voluntarily and knowingly signed an express written declaration to relinquish her rights — may still bring a timely action either after their spouse has died or during marital dissolution proceedings; provided that such delay is not unfair to the opposing side.