{"id":1754,"date":"2020-09-19T20:41:37","date_gmt":"2020-09-19T20:41:37","guid":{"rendered":"http:\/\/www.westcoastbk.com\/blog\/?p=1754"},"modified":"2020-09-19T20:44:30","modified_gmt":"2020-09-19T20:44:30","slug":"actual-harm-from-california-transmutation-agreement-and-california-uniform-voidable-transactions-act","status":"publish","type":"post","link":"https:\/\/www.westcoastbk.com\/blog\/2020\/09\/actual-harm-from-california-transmutation-agreement-and-california-uniform-voidable-transactions-act\/","title":{"rendered":"Actual Harm From California Transmutation Agreement and California Uniform Voidable Transactions Act"},"content":{"rendered":"\n

By Ryan C. Wood<\/a><\/p>\n\n\n\n

There will be more and more cases involving arguably\nvoidable transactions due to the recent In re Clifford Brace California Supreme\nCourt decision.  In re Clifford Brace was\nabout whether the California Family Code community property presumption should\nbe followed rather than the record title presumption when a married couple\nacquires real property during marriage and takes title as joint tenants.  The California Supreme Court, right or wrong,\nprovides there needs to be some sort of additional writing or evidence of the\nmarried couple\u2019s intent; a transmutation agreement, providing the married\ncouple\u2019s intent. <\/p>\n\n\n\n

A recent Ninth Circuit Bankruptcy Appellate Panel case, In re: RUDOLPH MEDINA a.k.a. \u00a0Rudy Medina, BAP No. SC-19-1299-FSG; Bk. No. 12-13764-LT7 and Adv. No. 18-90039-LT the issue was just a transmutation and whether it could be voided.\u00a0 This appeal is form the United States Bankruptcy Court for the Southern District of California.\u00a0 The chapter 7 debtor had a $1.4 million judgment against another party and that was part of his chapter 7 bankruptcy estate.\u00a0 The judgment debtor, after a judgment examination, transmuted half of his community property to his spouse then argued her separate property interest could not be touched or was protected from chapter 7 trustee enforcing the judgment against them.\u00a0 During another judgment debtor examination the judgment debtor informed the chapter 7 trustee he has transferred half the community property to his wife.\u00a0 The judgment debtor\u2019s assets totaled approximately $3.8 million with liabilities the married couple in aggregate totaling $4.1 million.\u00a0 In theory there was no harm or actual injury due to the transmutation agreement given the judgment being enforce was around $1.4 million or less than the judgment debtor\u2019s assets even after the transfer.\u00a0 The record on appeal is not clear on how the $4.1 million in liabilities affects the judgment debtor\u2019s assets. Maybe the bankruptcy attorney<\/a> or the chapter 7 trustee\u2019s attorney can make the party that made the transfer pay for the cost of voiding the transfer even though there was no actual harm or injury. <\/p>\n\n\n\n

This a huge deal given that a creditor may enforce\nits claim to payment against the debtor\u2019s separate property and all community\nproperty but may not enforce its claim to payment against the non-filing or\nnon-debtor spouses separate property.  This\nis why in the Medina case the judgment debtor transmuted half the community property\nto his spouse in an attempt to protect half the value of their assets.  Timing in the Medina case is the issue and\nthis will be potentially true of married couples that execute a transmutation\nagreement due to the In re Clifford Brace holding.<\/p>\n\n\n\n

Even with the holding in In re Clifford Brace taking\ntitle to property as joint tenants does create separate property interests;\njust not when filing for bankruptcy protection due to the inconsistent\ninterpretation of law.  See how joint\ntenancy is treated under California law upon: Death vs. Bankruptcy vs. Taxes\nvs. Divorce.  <\/p>\n\n\n\n

The issue is when must the transmutation agreement\nor additional writing providing their intent and in theory transferring assets\nto a spouse and the filing of a bankruptcy case be executed?  I had this question a long time ago and when\nfiling for bankruptcy the look back period for the California Uniform Voidable\nTransactions Act is four years.  In 1985\nthe State of California requires the transmutation of property, from community\nproperty to separate property, be in writing clearly providing the parties\nintent; but when?  If the transaction\ntook place in 2001 does the transmutation writing have to be in 2001 or close\nin time?  If the issue is as in In re\nClifford Brace that a married couple purchased property and took title as joint\ntenants during marriage why would they have to enter into a transmutation\nagreement until now given the Supreme Court of California just now ruled on\nthis issue?  Up until now it was unclear\nhow to precisely interpret the community property presumption versus title\npresumption.  If a couple enters into a\ntransmutation today but one spouse files for bankruptcy in two years did they\nfraudulently transfer or create a voidable transaction under California\nlaw?      <\/p>\n\n\n\n

Presumptions\nDefined and Discussed<\/strong><\/p>\n\n\n\n

Presumptions are how humans discriminate against\nother humans on a daily basis and it is all wrong.  Some horrible people use race as a conclusive\npresumption while others use race as a rebuttable presumption.  Both way it is horrible and not how we should\nstrive to analyze an issue.  <\/p>\n\n\n\n

The truth is we all have certain beliefs that are\nrebuttable presumptions.  Our society has\nprogrammed everyone to believe certain products say something about their\nowners and creates a rebuttable presumption. \nJust because someone is driving a $100,000 car does not mean they are\nrich.  It does create a rebuttable\npresumption.  If someone is walking\ntowards me and they are covered in dirt and smell it creates a rebuttable\npresumption that they are homeless.  For\nfar too many people things they see or experience create conclusive\npresumptions without further information. \nNot good.<\/p>\n\n\n\n

I should get back to the legal stuff and\npresumptions.  So the law creates\npresumptions to help solve problems.  Let\nus create then assume something that may or may not be true rather than start\nwith the truth to find the truth?  <\/p>\n\n\n\n

According to the Merriam-Weber Dictionary the definition\nof presumption is: a legal inference as to the existence or truth of a fact not\ncertainly known that is drawn from the known or proved existence of some other\nfact.<\/p>\n\n\n\n

So the fact that a married couple purchased a home\nor land during marriage, a true fact, creates an unknown truth or unproven\npresumption that the home or land is community property while ignoring the\nsigned, notarized and recorded joint tenant tile.  Oh by the way, in my legal world we have something\ncalled authentication of evidence. \nEvidence has to be properly authenticated to be entered and considered\nby the Court.  I can obtain a certified\ncopy of the recorded title<\/p>\n\n\n\n

Federal Rules of Evidence 902:  (4) Certified\nCopies of Public Records<\/em>.  A\ncopy of an official record \u2014 or a copy of a document that was recorded or filed\nin a public office as authorized by law \u2014 if the copy is certified as correct\nby: (A) the custodian or another\nperson authorized to make the certification; or (B) a certificate that complies with Rule 902(1)<\/a>,\n(2)<\/a>,\nor (3)<\/a>,\na federal statute, or a rule prescribed by the Supreme Court.  So I guess the self-authenticating title is\njust evidence of how the property was taken during marriage and that truth must\nbe ignored until further evidence of the married couples\u2019 intent is presented;\nanother writing that probably is not even self-authenticating.  Not good.<\/p>\n\n\n\n

So again back to timing of the transmutation\nagreement and the judgment debtor in the Median 9th<\/sup> Cir. BAP case. <\/p>\n\n\n\n

Back\nto the Medina Case and the Judgment Debtor Transmutation During Enforcement of\nthe Judgment by the Chapter 7 Trustee<\/strong><\/p>\n\n\n\n

Okay, so to recap, Medina filed a chapter 11 that was converted to chapter 7 and part of property of the bankruptcy estate that was being enforced by the chapter 7 trustee was a judgment.\u00a0 The defendant or judgment debtor while the chapter 7 trustee was enforcing the judgment, trying collect on the judgment, the judgment debtor transmuted or transferred half his community property to his wife creating two separate property interests in theory protecting his wife\u2019s now separate property interest from enforcement\/collection of the judgment by the chapter 7 trustee.\u00a0 But arguably there was no harm in the transfer to the bankruptcy estate so what is the problem? Whew!!\u00a0 <\/p>\n\n\n\n

Think it will work when timing is everything in this world?\u00a0 The Bankruptcy Court held the chapter 7 trustee had to prove actual injury or harm for the transfer to be voidable under the California Uniform Voidable Transactions Act; See California Civil Code Section 3439 \u2013 3439.14.\u00a0 The Bankruptcy Court acknowledged that the Transmutation Agreement put certain assets out of reach of the bankruptcy estate but found that there was \u201ccushion\u201d to satisfy the State Court Judgment.\u00a0 <\/p>\n\n\n\n

That may or may not have been true given the chapter 7 trustee chose to spend the time and money to appeal the Bankruptcy Court’s holding. It is never that simple and just because there might be assets to satisfy the judgment the transfer of half of the judgment debtor’s interest could significantly increase the costs of satisfying the judgment. If this was an issue the published opinion by the 9th Cir. BAP does not address it. One of the most frustrating parts of being a bankruptcy attorney<\/a> for me over the years is other parties unnecessarily increasing costs in cases so they can profit at the expense of debtors. This is why we have court appointed and paid defense attorneys in criminal matters. So rights are protected and the ability to pay is not an issue. This is not true in bankruptcy or most civil matters. If you do not have the funds to defend yourself you will lose regardless of the merits of the claim against you. Not good. <\/p>\n\n\n\n

The Ninth Circuit Bankruptcy Appellate Panel held\nthat was an erroneous interpretation of the law and reversed the granting of\nsummary judgment for the judgment debtor and remanded the matter back to the\nBankruptcy Court for the litigation to continue.<\/p>\n\n\n\n

The California Uniform Voidable Transfer Act\nprovides a party must prove there was: (1) \u201ctransfer\u201d of an (2) \u201casset\u201d and was\n(3) \u201cmade . . . with actual intent to hinder, delay, or defraud any creditor of\nthe debtor.  There is no statutory\nlanguage that supports a requirement that the plaintiff prove damages or actual\ninjury or that the debtor\u2019s remaining assets after the transfer were\ninsufficient to satisfy the debt without undue burden.  <\/p>\n\n\n\n

So the timing of the transmutation in this case was\nnot as important as first though. \nWhether the transfer is voidable pursuant to the California UVTA is a\nmuch more fact based analysis that does not include proving actual harm or\ndamages to void the transfer.  <\/p>\n","protected":false},"excerpt":{"rendered":"

By Ryan C. Wood There will be more and more cases involving arguably voidable transactions due to the recent In re Clifford Brace California Supreme Court decision.  In re Clifford Brace was about whether the California Family Code community property presumption should be followed rather than the record title presumption when a married couple acquires […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[101,99],"tags":[379,378,377,380],"_links":{"self":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/1754"}],"collection":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/comments?post=1754"}],"version-history":[{"count":2,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/1754\/revisions"}],"predecessor-version":[{"id":1756,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/1754\/revisions\/1756"}],"wp:attachment":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/media?parent=1754"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/categories?post=1754"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/tags?post=1754"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}