Does execution of a quitclaim deed or interspousal transfer grant deed constitute a valid transmutation of property from community property into separate property of one spouse?
It is widely understood by family law attorneys that under Family Code section 760, except as otherwise provided by statute, any property acquired during the marriage is presumed to be community property. What if spouses purchase property together, but then one party executes a quitclaim or interspousal transfer grant deed during the marriage, waiving his or her interest in that property and thereby granting it to the other spouse?
Parties can, in fact, agree to change the character of property acquired during marriage from community to separate property. This is known as a “transmutation.” Under Family Code section 852, a valid transmutation of real or personal property is required to be in writing by express declaration of the spouse whose interest is going to be adversely affected.
In In re Marriage of Kushesh and Kushesh-Kaviani (2018) 27 Cal.App.4th 449, the trial court had found that an interspousal transfer grant deed did not contain the requisite language for a valid transmutation. However, the Court of Appeals disagreed, holding that the document did in fact meet all necessary standards. Addressing a question of first impression, the court held that word “transmutation” does not need to be set out in the deed for it to be valid transmutation. Deeds have clear unambiguous expression of an intent to transfer. (Estate of Bibb (2001) 87 Cal.App.4th 461.)
On its face, an interspousal transfer grant deed or quitclaim deed between spouses involves one spouse foregoing or waiving any future interest he or she may have in the residence. So, is this enough? Maybe. While these deeds do appear to be a sufficient transmutation of property, that transmutation can be overcome by a showing of undue influence. Consequently, the facts and circumstances surrounding the signing of such deed should be examined in detail.
In transactions between spouses, especially involving property, each spouse owes to the other a fiduciary duty of the highest good faith and fair dealing. (Fam. Code § 721, In re Marriage of Haines (1995) 33 Cal.App.4th 277.) If one spouse has been disadvantaged in a particular transaction, there is a statutory presumption of undue influence. In In re Marriage of Matthews (2005) 133 Cal.App.4th 624, the court found that the spouse claiming there was no undue influence bears the burden of proving so.
In the Matthews case, Wife argued the existence of undue influence after signing a deed in order to obtain a lower interest rate on the parties’ mortgage. In looking to the facts, the Court found that she had voluntarily and freely executed the deed, had full knowledge of the facts and circumstances surrounding the deed, and even asked questions when she was unclear. As such, the court agreed with Husband that no undue influence existed.
What if the parties had not asked any questions, and were simply given advice to sign a deed not understanding the gravity of doing so? It appears that is a question that will be answered by the court on a case-by-case basis.
In summary, an interspousal transfer grant deed or quitclaim deed between spouses is normally a valid transmutation of property. However, the deed alone is not necessarily determinative. Undue influence may be presumed if one spouse is significantly disadvantaged, and the court should look to all facts surrounding the execution of such deeds. Even so, the rule from Contracts 101 holds true: you are bound by what you sign, so you should always read and understand what you are signing!