A valid transmutation must be in the correct form and must not violate the rules regarding the fiduciary relationship between spouses.

Express Declaration

To unpack that statement a bit, we first look to the "express declaration" requirement as alluded to California Family Code Section 852, which states the following:

(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.

(d) Nothing in this section affects the law governing characterization of property in which separate property and community property are commingled or otherwise combined.

(e) This section does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation shall continue to apply.

There's a fair amount of uncertainty as to how a court will interpret the "express declaration" used in a transmutation agreement between spouses. Because of this, practitioners often advise incorporating the word "transmute" or "transmutation" into the agreement (or some other wording that indicates the parties understand that the character of the property is being changed).

The statute above also clearly indicates that any such agreement must be in writing (with some exceptions as a result of case law) and the person who is  negatively affected must accept or agree to the transmutation.

Fiduciary Relationship

Though not directly mentioned in the statute above, a transmutation of property will not be upheld if a court determines that one spouse unduly influenced the other spouse. As a starting point, under California law, spouses are presumed to be in a confidential relationship with each other.

Section 1100(e) of the California Family Code states:

Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.

If one spouse gains an advantage as a result of the transmutation, there's a rebuttable presumption that the transmutation was a result of undue influence. Once the presumption exists, it is up to the spouse with the advantage to rebut it. If he or she is unable to rebut the presumption, then the transmutation will be considered invalid.

Two areas that are not clear under the law involve (a) the degree of advantage one spouse must have before the presumption is invoked and (b) whether this fiduciary duty can be waived. Both of these are beyond the scope of this post, but should be noted when dealing with the subject of transmutation agreements.

Legal separation between spouses means that the spouses' financial lives are separated without ending their status as a married couple. However, legally, separated spouses are not treated in the same way as a non-legally separated married couple.

Here are some scenarios where legally separate spouses and non-legally separated spouses may be treated differently:

1. A legally separated spouse may not inherit from his or her spouse through intestate succession. In this context a "surviving spouse" does not include a legally separated spouse.
2. Certain rights afforded a spouse after the death of the other such as temporary use of a family home, establishment of a probate homestead, and family allowances are not available for legally separated spouses.

Although in some respects legally separated spouses and non-legally separated spouses are treated differently, in others, there is no effect. For example, if one spouse names his or her spouse as a beneficiary of a retirement account, legal separation does not affect the survivor even though they were legally separated at the time of death. The survivor would still inherit the retirement account.

Likewise, joint tenant assets are not affected as a result of legal separation, nor does legal separation affect a bequest in a Will from one spouse to another from whom they are legally separated.

Divorce and re-marriage can have a significant affect on the estate plan you have in place.

First and foremost, in California, an "Automatic Temporary Restraining Order" is in effect during the marriage dissolution process. This generally hinders your ability to do estate planning as the law wants to avoid changes in your financial position during the pending divorce. 

Beneficiary Designations

If you designated your ex-spouse as a beneficiary of an asset with a beneficiary designation, for example, your retirement account, this designation is automatically revoked as a result of your divorce.

It's important to remember, however, that the divorce does not revoke the designation of your ex-spouse as the beneficiary of life insurance policies. It's therefore important to take stock of all of your assets and ensure that all beneficiary designation forms are properly updated during the estate planning process.

Remarriage

If you created an estate plan while you were single and then got married, your estate planning documents may be overridden at the time of your death, if your spouse survives you.

Your surviving spouse is entitled to the "statutory share" of your probate or trust estate. More details will be provided in another post; however, just note that if you have an existing estate plan and you get married, you must take steps to ensure that your estate plan will still be enforced despite your marriage. Most often, this can be a statement in your estate planning documents which states that you intend for your estate plan to be effective even though you recently were married.

Marriage brings with it many joys, but divorce is a precipitating event that forces many people to revisit the estate planning process. If you're going through a divorce, are contemplating divorce, or have completed a divorce, it's important to see what impact it may have on your estate plan.

In California, being married can present unique challenges to the estate planning process. More detail will be provided in other posts, but here is a preview of some of the issues that couples may face:

1. If you own community property with your spouse, you may need consent before transferring  the community property to a third party.
2. If you own community property assets that will pass without probate (for example, by beneficiary designation), then you may need your spouse's consent to name a beneficiary other than your spouse.
3. You are not entitled to designate the beneficiary of your spouse's retirement plans that are protected by ERISA (401(k), 403(b), etc.). (But see point 2, above.).

Although there may be complications, there are also benefits. For example, spouses can generally rollover the retirement benefits of their predeceased spouse. In addition, any community property that is owned by a married couple will get a full step-up in cost basis after the death of one of the spouses (which may reduce income tax consequences for the surviving spouse). Property that is transferred from one spouse to the other is also excluded from property tax re-assessment.