Often times during marriage a spouse will attempt to give a substantial gift to the other spouse and the question becomes whether that gift will remain as the separate property of the receiving spouse upon death or divorce. Ordinarily, gifts of small monetary value will be effectively transmuted to the receiving spouse without a written agreement but for gifts of substantial value the Court will consider the circumstances of the gift and whether or not a written transmutation agreement was executed. This situation arises most precariously when a spouse uses community property to purchase a substantial gift for the other spouse and designates the receiving spouse on the title to that property, such as in the case of an insurance policy, car, house, jewelry etc… In that situation, the California Supreme Court has held that even when the purchasing spouse has purchased an insurance policy (or other substantial gift) and clearly designated the receiving spouse as the beneficiary of that policy that such a purchase and designation is not a lawful transmutation of the property from community to separate property if the policy was purchased with community funds, “a policy of insurance on the husband’s life is community property when the premiums have been paid with community funds.” .  (In re Marriage of Valli (2014) 58 Cal.4th 1396, 1400.) The Valli Court reasoned as follows:

Married persons may, through a transfer or an agreement, transmute—that is, change—the character of property from community to separate or from separate to community. (Fam. Code, § 850., Reference Material) A transmutation of property, however, “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.” (Id., § 852, subd. (a).) To satisfy the requirement of an “express declaration,” a writing signed by the adversely affected spouse must expressly state that the character or ownership of the property at issue is being changed. (Estate of MacDonald (1990) 51 Cal.3d 262, 272, Reference Material) The “express declaration” requirement “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.” (Fam. Code, § 852, subd. (c), italics added.) (In re Marriage of Valli (2014) 58 Cal.4th 1396, 1400-1401)

Accordingly, the Court found in Valli that even an insurance policy which was purchased with community funds was not lawfully transmuted by a designation on the policy that the receiving spouse was the sole beneficiary. A separate written transmutation agreement is required for all gifts which are intended to be a gift of separate property to the receiving spouse.

If you have questions about the characterization of assets purchased during your marriage with community or separate property funds you should contact the Law Offices of Sam Walker for a free 15-minute phone consultation. We can help you determine the appropriate characterization and value for division upon dissolution of marriage or through probate proceedings.