Friday, July 24, 2020
California Supreme Court:
By Sandra Hong, Staff Writer
Property acquired during a marriage with community funds but held in joint tenancy is reachable by bankruptcy creditors as community property to satisfy the debts of either spouse, the California Supreme Court declared yesterday in an opinion that attempted to untangle a “snarl of conflicting presumptions” in how courts treat marital assets within California’s community property system.
The opinion came in response to a question certified to it by the Ninth U.S. Circuit Court of Appeals.
Justice Goodwin H. Liu wrote the opinion, joined by five colleagues. Justice Leondra Kruger authored a concurring and dissenting opinion.
Specifically, the court determined that the community property presumption under Family Code §760—which provides, “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”—overrides that of Evidence Code §662, which says:
“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.”
The Family Code provision, Liu said, applies not only in a divorce action but also in a bankruptcy proceeding where a bankruptcy trustee is collecting debts against one or both spouses. Liu emphasized that the court’s decision does not undermine the ability of “innocent or estranged spouses” to protect their property interests.
“Nothing in our decision precludes spouses from holding separate property as joint tenants or from transmuting community property into separate property,’” he wrote.
Ninth Circuit Question
The federal appeals court asked the state’s high tribunal to clarify whether Evidence Code or Family Code governs in a dispute between a married couple in Redlands and the bankruptcy trustee attempting to collect debts against the husband.
Clifford Brace and Ahn Brace acquired a Redlands residence in 1977 or 1978. They also purchased a rental property in San Bernardino sometime before Clifford Brace declared bankruptcy in 2011. Both properties were bought with community funds and the Braces took title as “husband and wife as joint tenants.”
The bankruptcy trustee sought to declare both the rental and primary residence as community property under Family Code §760. The Braces argued that the presumption under §760 should not apply since it was not a divorce case.
“Nothing in the text of Family Code §760 expresses such a limitation,” Liu wrote.
Siberell v. Siberell
Liu discussed the courts’ evolving interpretation of marital property since the 1932 case of Siberell v. Siberell, which treated property in joint tenancy as separate property.
Legislative changes in 1973 allowed couples to defeat the community property presumption through form of title, but only for property acquired before 1975, Liu noted. If acquired after, then the property was subject to the presumption under Family Code §760, he said.
Additional legislative amendments in 1983 favoring the community property presumption were enacted, the jurist noted.
Liu noted that Evidence Code §662 is not an exception to the Family Code §760. In fact, he elaborated, other statutes “explicitly applied the Family Code §760 presumption to define third-party rights, such as creditor rights, against one or both spouses,” specifically citing Civil Code §695.020, which declares:
“Community property is subject to enforcement of a money judgment as provided in the Family Code.”
While the joint tenancy deeds alone were not enough to rebut the community property presumption, Liu said, there are other methods of changing the character of marital property, depending on when the property was acquired.
Family Code §852 applies to property acquired on or after Jan. 1, 1985, requiring a “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,” he pointed out.
For property acquired before 1985, a change in character “can be demonstrated by substantial evidence of an oral or written agreement or a common understanding between the spouses,” Liu wrote, citing the Third District Court of Appeal 1988 decision in Estate of Blair.
Justice Leondra R. Kruger disagreed with Liu on the timing of when the community property presumption took hold over properties held in joint tenancy.
“[U]nlike the passage of the modern transmutation rule, the 1975 reforms had no direct effect on the old separate property presumption,” Kruger wrote.
Couples such as the Braces who purchases property in joint tenancy between 1975 and 1985 “were entitled to depend on the law as it had existed,” she said, adding:
“By backdating the relevant changes by a decade, the majority risks upending the reasonable expectations of individuals who structured their purchased in reliance on the law as the courts had then described it.”
The case is In re Brace, S252473.
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