Question: My mother died a few years ago, and she left some property to me and to her grandchild, my son. My son received a small residential property. Since it was transferred to his name, he has cleaned up the property and has been renting it out.
He recently told me that he was planning to put the property in both his and his wife’s names. He apparently wants to make sure the property is held as joint tenants so that it can go to his wife when he dies. He also said that his wife said that it would make sense to hold the property in both their names since they are both paying taxes on the rental income.
I don’t want to butt in on his family affairs, but I told him to keep it in his name alone. I suspect that his desire to put her name on the property is an effort to smooth over some recent marital problems. What do you think he should do?
Answer: It’s always good advice to pay attention to your mother, and this is no exception. Your question concerns the “transmutation” of property — changing the character of property from separate property to community property or from community to separate.
California is a community property state, where property acquired during marriage and prior to separation is community property. Property acquired prior to marriage or during marriage by gift is separate property.
The residence that your son received as a gift from his grandmother is his separate property. Given the possibility that his marriage may end in divorce, he should follow your advice and not transmute it.
California law has several requirements for a valid transmutation of property. Without covering all of them, it is sufficient to say that if your son executes a grant deed transferring the property to him and his wife, then a court likely would find a valid transmutation of the property from his separate property to community property. Thus, his wife would be the owner of a one-half undivided interest in the residence.
If your son’s objective is to transfer the property to his wife at death, he can do that without putting the property into both their names as joint tenants. For example, he can execute a will that transfers the property to her. A will “only speaks at death” and thus does not change the character of the property during his life.
Although transferring property by will typically means initiating a probate proceeding in court, certain expedited procedures exist when a decedent’s will transfers property to the surviving spouse.
In the alternative, your son and his wife can create a revocable living trust and hold the property in the name of the trust without changing its separate property character.
If, however, your son is determined to put his wife’s name on the title to the property and the marriage ends in divorce, he will be entitled to more than just his half. Where a party contributes his or her separate property to the marital community, that party has a right to reimbursement of the contribution.
The typical example is a spouse that contributes separate property funds to the down payment on a home. If the marriage ends in divorce, the spouse who contributed funds can get that amount back prior to any other proceeds being distributed to the parties.
In your son’s situation, if he transfers the separate property asset to the community, he is entitled to reimbursement of the amount contributed. So, if the house is worth $350,000 today at the time of transfer and it is valued at $400,000 at the time of divorce, he can get the $350,000 back as a reimbursement, and the remaining $50,000 in appreciation is split between him and his soon-to-be ex-wife.
Had he just left the property alone as his wise mother had suggested, the property would be 100 percent his.
Although your son’s wife raises the argument that the payment of income taxes somehow gives her a property right in the residence, there is no support for her position. Agreeing to file jointly as a married couple does not give any spouse the ability to accrue property rights in the other spouse’s property.
Overall, your question is a reminder that many of us should listen to our mothers. Deeding real property away is no way to smooth over marital problems.
If your son insists on doing so, he may find himself soon singing Merle Haggard’s lyrics from the famous song, “Mama Tried,” “Mama tried to raise me better, but her pleading, I denied, That leaves only me to blame ’cause Mama tried.”
Preston Morgan is a partner at Kopper, Morgan & Dietrich, a Davis law firm providing family law, estate planning and trust litigation representation. His column is published every other week in the Davis Enterprise. To pose a question to Preston Morgan, contact him at https://kopperlaw.com.
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