Category Archives: Record Title Presumption vs. Community Property Presumption

California Supreme Court Holds Community Property Presumption Wins Versus Recorded Title Presumption

By Ryan C. Wood

I have been writing about the community property presumption versus the recorded title presumption for years now as applicable to filing bankruptcy.  We finally have the law interpreted by the California Supreme Court to put an end to certain arguments.  That is unless the legislature decides to weigh in and change the law that was interpreted.  I would like to thank all of the bankruptcy attorneys that fought for individual rights and the rights of how people chose to take title when purchasing real property during marriage.  Unfortunately I could see the future and knew the community property presumption would win the argument.

The California Supreme Court issued its opinion today in In re Brace. The entire opinion for In re Clifford Brace, Case No. S252473 can be found at:

In re Clifford Brace S252473 Opinion

The California Supreme Court held:

  1. Evidence Code section 662 does not apply when it conflicts with the Family Code section 760 community property presumption.
  2. When a married couple uses community funds to acquire property with joint tenancy title on or after January 1, 1975, the property is presumptively community property under Family Code section 760 in a dispute between the couple and a bankruptcy trustee.
  3. Under Family Code Section 852, joint tenancy titling of property acquired by spouses using community funds on or after January 1, 1985 is not sufficient by itself to transmute community property into separate property.

So that is the trifecta of slamming the door on filing a bankruptcy petition and only listing half the value of the bankruptcy filers real property purchased during marriage and title taken as joint tenants.  I can hear the collective bankruptcy attorney groan for those that care.

UNLESS the community property presumption can be rebutted………… Good luck with that given the notarized, signed and recorded title alone is not enough.  What more is needed? 

I do not like this opinion as it relates to my bankruptcy clients and their ability to discharge their debts under the Federal Bankruptcy Code.  I do believe this decision ultimately helps to do as the California Supreme Court provides on Page 25: “Seeking to curb the risk of fraud, undue influence, and litigation arising from informal agreements between spouses that purported to change the character of property, the Legislature enacted our present-day transmutation statutes.” 

I do believe the intent of this holding is for good; that spouses to be treated equally when it comes to property rights under California Law; which has not always been the case regarding women’s rights to own property and exercise their rights regarding their property.  I am all for equally bad or equally good treatment for all.  What people do not get is that your bad treatment is actually the same for everyone, so it is for all purposes equal.

The opinion by the California Supreme Court assumes you do not know what you are doing when purchasing a house during marriage and taking the title as joint tenants.  There limitless examples of circumstances in life that you must be bound by your choice.  You mark yes on a test and the correct answer is no and that is that.  You got the question wrong.  It is so fair, simple and consistent.  Every time an analysis of the circumstance is interpreted it is a binary result, a “1” or a “0.”  Why is taking title as joint tenants not the same analysis?  Why is it made more complicated?  Why are the purchasers of the property during marriage in California not bound by their chosen taking of title good or bad for them?    

Interpretation of Law Assumes You Do Not Know What You Are Doing  

I will try and keep this a vanilla as possible, but you need to be protected from yourself whether you agree or not.  This is what law does.  It does keep us safe and does a pretty good job doing it.  From having a safe food supply to forcing you to wear a seatbelt the law is keeping you safe and saving you from yourself.

So too is the interpretation of law and the community property presumption versus the recorded title presumption.  If you are married and purchasing the real property with community funds then why would the purchase of the house create two separate property interests?  Community funds were used for the down payment and for the mortgage payments, property taxes, maintenance and insurance so the character of the property naturally has to be community property upon divorce or death.  What about when filing for bankruptcy?

The Community Presumption Can Be Rebutted

This is nothing new.  Personally I think a notarized, signed and recorded deed saying the property is held as joint tenants should all that is necessary to rebut the presumption that the property is community property.  Of course this would be good for the two humans that are married and took title as joint tenants when filing for bankruptcy so naturally that cannot be correct.  What more is needed to rebut the presumption? 

Interpretation of Family Code Section 852 Simply Does Not Exist

Call me crazy but I take a holistic view the interpreting the law and the world.  The way California Family Code Section 852 is interpreted drives me crazy.  I have this issue with all kinds of laws and rules for this type of interpretation.  This is not an issue of which came first, the chicken or the egg?  The issue is condition precedent.  A contract law reference to an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual duty exists.

For example here in the Northern District of California the United States Bankruptcy Court has General Order No. 32.  This rule is about how pay statements for the 60 days prior to the bankruptcy case being filed must be turned over to the trustee assigned to the case and not filed with the Court.  General Order No. 32 also provides procedure to be followed if the pay statements cannot be provided and to explain why and estimate the gross income and net income in lieu of providing the actual pay statements.  The condition precedent to General Rule No. 32 being applicable is the existence of W-2 income resulting in the issuance of pay statements.  If a person is not employed or self-employed THERE ARE NO PAY STATEMENTS TO PROVIDE AND NO PAY STATEMENTE EVER EXISTED TO PROVIDE.  No part of General Order No. 32 addresses the nonexistence of pay statements yet over and over again I have various parties telling me we have to provide a declaration providing there are no pay statements to provide pursuant to General Order No. 32.  No, no and no.

The same is true regarding the interpretation of California Family Code Section 852.  There is a condition precedent to transmuting an asset from community property to separate property or separate property to community property.  That condition precedent is the actual temporal existence of the character of the property first then that asset is by writing is characterized as the spouses property in a different way; community or separate.  How can that happen when the real property in question was purchased during marriage and the title was taken as joint tenants?  When was the house ever titled or characterized as community property for it to be then transmuted between spouses as separate property?  IT WAS PURCAHSED AS SEPARATE PROPERTY AS EVIDENCED BY THE NOTARIZED, SIGNED AND RECORDED TITLE.  You say what if down payment for the house was community property to begin?  I say what if the down payment was the separate property of one spouse?  Great, I say trace back where the money came from to purchase the house, but please start with recognizing the notarized, signed and recorded title as the starting point given that really exists in reality.  Do not start with a legal fiction, a presumption created to change reality.  This is also not a divorce.  It is a bankruptcy filing in which only the filing spouses community assets are liable to community debts.    

The California Supreme Court says we do not care what the title says either way given the house was purchased by a married couple during marriage so you all better have some sort of writing to let everyone know how you want this property treated upon divorce, death and the filing of bankruptcy.  Okay, how romantic.  Maybe this is why over 50% of marriages fail.  All marital transactions must be memorialized in writing throughout the marriage to provide evidence of the spouses intent play by play to overcome various presumptions that many married couples have no idea exist until there is a problem.  

CA Family Code Section 852

(a) 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.

(b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded.

(c) This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage.

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.

California Law and Record Title Presumption Versus Community Property Presumption and Bankruptcy

By

Update as of November 14, 2018

On November 8, 2018, the Ninth Circuit Court of Appeals entered an order certifying question to the Supreme Court of California as follows:

“Does the form of title presumption set forth in section 662 of the California Evidence Code overcome the community property presumption set forth in section 760 of the California Family Code in Chapter 7 bankruptcy cases where: (1) the debtor husband and non-debtor wife acquire property from a third party as joint tenants; (2) the deed to that property conveys the property at issue to the debtor husband and non-debtor wife as joint tenants; and (3) the interests of the debtor and non-debtor spouse are aligned against the trustee of the bankruptcy estate?”

This is the question the following cases and discussion of various cases are trying the answer and it is far from simple. The outcome of the decision by the Supreme Court of California will not have much of an impact on bankruptcy filings if they side on the community property presumption since that is what is taking place now. If the record title presumption is determined to overcome the community property presumption us bankruptcy attorneys will again be able to file cases for one spouse or the other that recognizes real property held as a joint tenancy and only include the value of the filing spouses separate property interest. We shall see.
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Prior to November 8, 2018

What? I thought the Ninth Circuit Court of Appeals in the Summers case already held that the taking of title as joint tenants under California law is not subject to California community property transmutation laws? Then the California Supreme Court held the seemingly opposite result in the Valli case. Yes, that Frankie Valli. The law that counts is California State law. The issue here develops when real property is acquired during marriage and title is taken by a married couple as joint tenants. The title is taken as joint tenants and therefore the property is legally under California State law the married couple’s separate property. The taking of title in this form provides their intent. We also have California’s transmutation law and certain presumptions saying something else apparently. Now we have the Brace case decided by the Ninth Circuit Bankruptcy Appellate Panel publishing a decision that discusses the interplay between the Summers and Valli cases.

Bankruptcy law is federal, which relies on applicable nonbankruptcy law, state law, to provide for many substantive and procedural rights under the bankruptcy code. If you did not know this please take a moment and do some research on this issue. Then you throw in that California is a community property state and we have a complicated interplay of law and who gets to decide who is right when applying these laws. There are also only 8 community property states with Alaska being an opt-in community property state. So I would say there are 8.5 community property states if being technical.

I believe the difficulties in interpreting this intersection of law is for good reasons and good intentions. The result has been far from good for a very long time. The issue really just comes down to trying to prevent litigation regarding what is community property versus separate property at the time of divorce in California.
Sadly when things go bad opinions change as to who owns what. When filing for bankruptcy protection what is community property of a married couple and separate property is also extremely important.

The 9th Cir. Bankruptcy Appellate Panel Says The California Supreme Court Wins

The Ninth Circuit Bankruptcy Appellate Panel could have chose to not considered the California Supreme Court case and vice a versa. See Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003). The 9th Circuit Bankruptcy Appellate Panel cited a 9th Circuit decision that held when there is a irreconcilable issue between courts then any future three-judge panel of the court of appeals and district courts should consider themselves bound by the [California Supreme Court Valli Case] intervening higher authority and reject the prior opinion of this court as having been effectively overruled. This is some rare air right here. How many people can tell you exactly how intersections of law such as this are decided? Very few, but here is it and a case to read about it. Extremely interesting reading and the requirement of a three-judge panel is excellent.

Presumptions Under California Law Regarding Community Property and Taking Title During Marriage

Before moving forward there are certain presumptions under California community property law that need to be defined and understood.

CA Family Code Section 750

A husband and wife may hold property as joint tenants or tenants in common, or as community property, or as community property with a right of survivorship.

California law clearly provides a married couple can hold property as joint tenants. It issues is the title or evidence of this intent to overcome the presumption that all property acquired during marriage is community property. See CFC 760 below.

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.

Okay, so when real property is acquired during marriage the presumption is the real property is community property. What could possibly rebut that presumption? Is it possible a recorded title signed at the time purchase providing title is as joint tenants can rebut this presumption?

CA Family Code Section 2581

Presumption Concerning Property Held In Joint Form: 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.

Again, a recorded title is the legal document that provides how and who owns a piece of property. Again, is title taken as joints tenants during marriage then recorded with the county recorder’s office fulfills the requirements of CFC 2581? What other interpretation of a joint tenant title could be inferred? As with all questions of statutory interpretation we begin with the plain language of the statute. See Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004); Ariz. Health Care Cost Containment Sys. v. McClellan, 508 F.3d 1243, 1249 (9th Cir. 2007). But a recorded deed is not a statute. By the plan language of a recorded title without knowing anything else what conclusion would or could the recorded title result in? This is open to human interpretation? It says the married couple is married and bought the property as joint tenants regarding the property they acquired during marriage. The entire point of CFC 2581 is to provide guidance on a recorded title. What more does a title need say? It is difficult to balance what CFC 2581 actually says with with the recent decisions in Valli and now the Brace case.

Let us now bring this back to the Bankruptcy Code and why I am writing about this. Section 2581 applies “for the purposes of division of property on dissolution of marriage or legal separation of the parties,” and when filing for bankruptcy protection? The various decisions on this issue do discuss this issue in some detail and conclude there is nothing limiting the application of Section 2581. Section 2581 does not say for all purposes. It clearly provides for the purposes of division of property on dissolution of marriage or legal separation. Generally when the word “purpose” is used it is because it is possible for other “purposes” such as filing for bankruptcy protection Section 2581 is not applicable. This is not how California law has been interpreted though. “We give the language its usual and ordinary meaning, and ‘[i]f there is no ambiguity, then we presume the lawmakers meant what they said.’” See People v. Gutierrez, 58 Cal. 4th 1354, 1369 (2014) (alterations in original) (quoting Mays v. City of Los Angeles, 43 Cal. 4th 313, 321 (2008). When a married couple does file bankruptcy in a community property state, and only one spouse files for bankruptcy, only community property and filing spouses separate property become part of the bankruptcy estate pursuant to Section 541 of the Bankruptcy Code. So for purposes of filing for bankruptcy protection what is community property and separate property must be taken into account depending upon the circumstances. I now say depending upon the circumstances given many times there is no reason to even go down the road of should only one spouse file for bankruptcy protection and the other not. Many times one spouse just does not want to file at all. Or a couple has some misguided myth about bankruptcy that prevents them from even considering filing at all under any circumstance while the other spouse is all for it. Attorneys practicing bankruptcy law get a very bad wrap from the real world. This topic is a perfect example of the difficulties.

So the Ninth Circuit Court of Appeals in Summers said the California transmutation laws are not applicable to the purchase of property during marriage as joint tenants. Even if the California transmutation laws are applicable the signed, notarized and recorded title meets the requirements of Section 852, right?

CA Family Code Section 852

Transmutation of Property: (a) 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; (b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded.

Third parties do receive notice given the title is recorded with the county. So simple.

The Ninth Circuit Court of Appeals held in Summers that California transmutation laws do not apply to the acquiring of real property during marriage under California law. CFC 2581 provides there should be an express declaration of the parties’ intent. Yes, that is the title record as joint tenants. But no, you have to go beyond what the letter of the title says and now comply with California transmutation laws as well? CFC 2581 is not good enough apparently.

California Evidence Code Section 662

Record title presumption: which provides generally that “[t]he 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.”
Wait a second here. California Evidence Code Section 662 says there is a presumption about how title is taken. What clear and convincing evidence has the Court discussed that the married couple in Valli or Brace did not want the property to be held as joint tenants? The title says that. So we now apparently have to ignore CFC 2581 and Cal. Evid. Code 662.

The Summers Ninth Circuit Court of Appeals Case – Hanf v. Summers (In re Summers), 332 F.3d 1240, 1242 (9th Cir. 2003)

In Summers, the Ninth Circuit held that under California law, the community property presumption is rebutted when a married couple acquires property from a third party as joint tenants. In Summers the husband, wife and daughter took title to a piece of real property as joint tenants and each of the three parties eventually filed for bankruptcy protection. Citing several California Courts of Appeal decisions, the Ninth Circuit held that under California law the transmutation requirements applied only to interspousal transactions. The wrinkle here that threw everything sideways was the daughter, a third party, was also on titled in addition to the married parents. To get a result that was fair there had to be a way for the three to be joint tenants. The Summers court relied on the California courts’ definition of “transmutation” as “an interspousal transaction or agreement that works a change in the character of the property.” In re Summers, 332 F.3d at 1244 (citing In re Marriage of Cross, 94 Cal. App. 4th 1143, 1147 (2001) (emphasis added)).

As a result of Brace we arguably have to ignore the actual definition of a transmutation under California law. When a house is purchased there is no “interspousal transaction or agreement that works to change the character of the property.” Someone please explain to me how a purchase of a house, an agreement between a married couple during marriage, changes the character of property a married couple is purchasing? You have to own the property first to change the character of the ownership. Right? Some human being please explain to me how I can change the character of property I do not yet own? This bankruptcy attorney finds this confusing.

The purchase of a house is also NOT an “interspousal transaction.” The transaction is between the spouses and the seller. Now we have to ignore the California transmutation definition too. The California Supreme Court case Valli v. Valli (In re Marriage of Valli), 58 Cal. 4th 1396, 1400 (2014). The California Supreme Court did not agree with the Ninth Circuit Court of Appeals interpretation of California transmutation law in Summers. In Valli, the California Supreme Court held that California’s transmutation statutes are also applicable to transactions in which spouses acquired property from a third party. 58 Cal. 4th at 1405-06. The California Supreme Court noted that prior to California’s transmutation laws the alleged transfer of property by oral or implied agreement caused expensive litigation in divorces. This led to just a passing comment being interpreted or argued to be an agreement to transmute property. That is why we now must have a writing to transmute property. Okay, so there is plenty of merit to reducing litigation in divorces and not having one spouse upon divorce or dissolution say an asset is not a community asset. I get that. The problem is that I still have read nothing to lead me to believe a title saying a house purchased during marriage with title take as joint tenants does not meet the transmutation requirements anyway even though I do not believe the transmutation requirements are applicable to begin with. Nope. That is not the case according to Valli and Brace. This is a legislation issue and what various California laws say about this issue and the interplay with the Bankruptcy Code in a community property state.

Another wrinkle is: The California community property presumption applies to property acquired during marriage unless it is: (1) traceable to a separate property source; (2) acquired by gift or bequest; or (3) earned or accumulated while the spouses are living separate and apart. Valli, 58 Cal. 4th at 1400.

Ninth Circuit Bankruptcy Appellate Panel Brace Case

The Ninth Circuit Bankruptcy Appellate Panel declined to agree with the Summers case and followed the Valli case interpretation of California law. It is important to note that the 9th Circuit BAP provided that the presumption of community property was not overcome by the facts of the Brace case. Under other circumstances they may have held otherwise with more facts to overcome the community property presumption. It begs the question what evidence or recorded document or non-recorded document is clear and convincing evidence of the married couples intent to be joint tenants when purchasing property California? The 9th Cir. BAP instructs us that a specific statutory provision does prevail over a general one relating to the same subject. Pac. Lumber Co. v. State Water Res. Control Bd., 37 Cal. 4th 921, 942 (2006). This principle of statutory construction actually supports the conclusion that the community property presumption prevails over the title presumption. See Valli, 58 Cal. 4th at 1412-13. The community property presumption is a specific statutory presumption found within California’s community property law, not the more general presumption found in Section 662 of the California Evidence Code. Another piece of rare air regarding how the intersection of law is interpreted. They are saying that the transmutation laws are specific and the record title presumption is just a general statutory provision of the general transmutation laws that can be ignored if there is more specific law. That is interesting. Does a big umbrella stop the rain from every getting to the small umbrella under the big umbrella? In some circumstances yes and some circumstances no. It is open to interpretation on a issue by issue analysis and there is nothing uncomplicated about it.

What We Can Take Away From This?

There is no such thing as joint tenancy between a married couple under California law unless there is an additional writing in which you say something like, “WE TOOK TITLE TO OUR HOUSE AS JOINT TENANTS DURING MARRIAGE, SO THE PROPERTY IS EACH SPOUSES SEPARATE PROPERTY. IF THERE IS ANY QUESTION ABOUT OUR INTENT IN THE EVENT OF DEATH, DIVORCE DISSOLUTION OR BANKRUPTCY WE ARE MAKING THE EXPRESS DECLARATION REGARDING THIS PROPERTY WE NEVER OWNED BEFORE MARRIAGE AND ARE IN FACT INTENDING TO OWN THIS REAL PROPERTY AS OUR SEPARATE PROPERTY AND JOINT TENANTS AS THE RECORDED TITLE PROVIDES.” Then take that writing and record it with the county recorder’s office or have it notarized and tucked away with hope it is never needed. But then when you go to record this document after ten years an employee at a county recording office may say that the document was not notarized properly if the notary left out one word from the certificate notarizing the additional writing you created to make your intent clear. So do you now we need two writings or a writing about the writing witnessed by two disinterested parties? In today’s world possibly a video uploaded to the “cloud” of both spouses actually saying what there intent is regarding a property purchased during marriage? The point is where does it end? So how do you hold property as joint tenants if you are married when the actual recorded title is not enough to show the intent of the parties is the question?

Why Do Bankruptcy Filers We Care?

This issue arises when one spouse files for bankruptcy and the other does not. The issue for bankruptcy attorneys is whether only half the value of our client’s real property becomes property of the bankruptcy state when the title is taken as joint tenants. Half of the house is supposed to be the separate property of each spouse or half is the non-filing spouses separate property. This is a huge issue for bankruptcy filers in California and applying exemptions to protect client’s real property and obtain a discharge of their eligible debts. Community debts may only seek satisfaction from community assets.