Category Archives: California Family Code and Bankruptcy

California Supreme Court Oral Argument For In re Clifford Brace And The Community Property Presumption Versus Recorded Title Presumption Took Place Today


By Ryan C. Wood

I will be updating this article over the next few days.  So I listened to the oral argument held before the California Supreme Court today regarding California’s community property presumption versus the title presumption in the In Re Clifford Brace case, Case No. S252473.  All of the attorneys did a wonderful job making their arguments and the various judges asked many interesting questions.

I might be playing Monday morning quarterback here and I did not read all of the briefs, but I have read all of the various bankruptcy cases and the In re Marriage of Valli, Super. Ct. No. BD414038, and it seems so clear to me.  So we have California Family Code Section 760 versus California Evidence Code Section 662 with California Family Code Section 2581 tapping in providing unequivocally that California Family Code Section 2581 applies for purpose of division of property on dissolution of marriage or legal separation of the parties. 

The Brace case exists because of bankruptcy and the California Supreme Court is tasked with weighing in on this issue because of bankruptcy.  I simply believe that the law supports that a married couple that acquires real property during marriage in California and takes title as joint tenants have a separate property interest that is 50/50 pursuant to Section 662 and the signed, notarized and recorded joint tenant title is a clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property satisfying California Code Section 2581, even though Section 2581 is only meant to applicable to dissolutions of marriage.  Done.  Life can go on unchanged except bankruptcy attorneys can file a bankruptcy petition that only includes the value of the filing spouses separate property interest or their 50% interest in the real property and not 100%.  Perfect.   

TRANSMUTATION LAWS REALLY SHOULD NOT APPLY AT DEATH OF A JOINT TENANT AND THEY DO NOT.  TRANSMUTATION LAWS SHOULD ALSO NOT APPLY IN A BANKRUPCTY PROCEEDING.  TRANSMUTATION LAWS WERE IN FACT APPLIED IN THE VALLI CASE BECAUSE GUESS WHAT, IT WAS A DISSOLUTION OF MARRIAGE PROCEEDING.

WHEN SOMEONE DIES THEY ARE NOT IN A DIVISION OF PROPERTY ON DISSOLUTION OF MARRIAGE OR LEGAL SEPARATION SO THE SURVING SPOUSE GETS THE ENTIRE PROPERTY BECAUSE LEGAL TITLE WAS HELD AS JOINT TENANTS as recorded when they bought the property and one spouse dies. WHAT THEY CHOSE TO DO.  THIS HAPPENS EVERYDAY.  What is the problem then?  There is none.  No fight here.  Oh by the way, what happens to the debts, credit card debts, in the name and social security number of the spouse that just died?  Nothing happens!!!  There was no probate.  There was no opportunity for a claim to be filed.  Nothing!!  Even though the debt could have been and mostly like was incurred during marriage and presumptively a community debt THERE IS NO LONGER ANY COMMUNITY because the spouse that had the debt in their name and social security number died.  A credit card company may not even know the person that owes them $50,000 and died was even married.  Hypothetically, but this is what happens, the dead spouse’s interest in the $50 million house the spouses held as joint tenants was passed to the surviving spouse and life went on.  That is it.  Done.  Bye, bye creditors of the dead spouse.  This is not what happens in a dissolution or divorce of course because guess what?  Section 2581 and other presumptions are applicable.        

WHEN SOMEONE FILES FOR BANKRUPTCY THEY ARE NOT IN A DIVISION OF PROPERTY ON DISSOLUTION OF MARRIAGE OR LEGAL SEPARATION OF THE PARTIES OR HYPOTHETICAL DEATH, SO IF ONLY ONE SPOUSE FILES FOR BANKRUPTCY PROTECTION ONLY THE FILING SPOUSE’S SEPARATE PROPERTY AND ALL COMMUNITY PROPERTY ARE LISTED AS ASSETS SUBJECT TO ADMINISTRATION OR BECOME PART OF THE BANKRUPTCY ESTATE. 

Oh, here is the problem.  We cannot have poor people seeking the relief the Bankruptcy Code provides discharging debt and moving on with life hopefully happier and healthier.  We have to list the 100% value of their joint tenant titled property even if only one spouse files bankruptcy  and should by law only have to list the 50% separate property interest.  If a father and daughter hold title as joint tenants to real property on the party that files for bankruptcy has to list their 50% interest in the real property. 

So now we are back to the California Family Code presumptions screwing things up.

This is big bucks for mindless, heartless and never dying corporations.  It is also big bucks potentially for chapter 7 and chapter 13 trustee’s; potentially.  If only 50% of the equity in a piece of real property need be listed in a bankruptcy case then it is more likely bankruptcy attorneys will be able to exempt/or protect that equity thereby allowing the bankruptcy filer to file chapter 7 and discharge all of their debts or pay less back in a chapter 13 reorganization case.  Right now in chapter 7 cases we cannot list only 50% of the equity or the filing spouse’s separate property interest in the real property for fear of the property will be sold or liquidate by the chapter 7 trustee.  My clients cannot pay me to fight this battle given they are bankrupt and the interpretation of the law has not been favorable.         

I will make this simple for everyone to understand.  A lot of time, effort and money has been spent to convince many judges, federal and state, that the sky is purple when they can simply look at the sky and know it is blue.  Just take the plain and not ambiguous signed, notarized and filed title as your guide.  So simple with no need to spend millions of dollars to get a result that is inconsistent with common practice and knowledge and only to be applied when seeking bankruptcy protection.  That is why this issue has dragged on so long.  It has dragged on so long because holding a married couple has a separate property interest in real property acquired during marriage with title recorded as joint tenants is right but financially bad for multi-billion dollar corporations.  So here we are.  That fact that this issue has not been resolved for so long is a red flag.  It takes longer and much more money to turn the sky purple to simply look up at the clear blue sky.  So we have been faced with the never ending challenge of turning the sky purple and it has never been closer it seems.    

The sky is the legal document recorded with the county recorder’s office providing the married couples intent, clear and convincing evidence of their intent, regarding how they want a piece of acquired during marriage treated.  The recorded title is a signed, notarized and then filed legal document that is admissible as evidence to rebut any presumption; such as the community property presumption. 

THIS IS THE DIFFERENCE BETWEEN THE VALLI CASE AND WHAT IN RE CLIFFORD BRACE STANDS FOR.  IN VALLI THE STUPID INSURANCE POLICY FOR HIS SPOUSE DID NOT INCLUDE A DOCUMENT SIGNED, NOTORAZIED AND FILED WITH THE GOVERNMENT TO REBUT THE REPRESUMPTION OF THE INSURANCE POLICY BEING COMMUNITY PROPERTY IN A DIVORCE PROCEEDING.  A PIECE OF REAL PROPERTY ON THE OTHER HAND DOES, AND HAS A RECORDED TITLE PURSUANT TO THE EVIDENCE CODE 662, A STATUTE; AND CONSISTENT WITH MEETING THE REQUIREMENTS OF 2581 IF WE MUST. 

CA Family Code Section 760

Community Property: Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.

CA Family Code Section 2581        

For the purpose of division of property on dissolution of marriage or legal separation of the parties, property acquired by the parties during marriage in joint form, including property held in tenancy in common, joint tenancy, or tenancy by the entirety, or as community property, is presumed to be community property. This presumption is a presumption affecting the burden of proof and may be rebutted by either of the following:

(a) A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property.

(b) Proof that the parties have made a written agreement that the property is separate property.

CA Evidence Code Section 662

The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.