Category Archives: California Family Code and Bankruptcy

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

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:

Evidence Code section 662 does not apply when it conflicts with the Family Code section 760 community property presumption.
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.
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 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.