{"id":963,"date":"2019-09-21T21:56:19","date_gmt":"2019-09-21T21:56:19","guid":{"rendered":"http:\/\/www.fremont-bankruptcy-attorney.com\/blog\/?p=963"},"modified":"2019-09-21T21:57:47","modified_gmt":"2019-09-21T21:57:47","slug":"another-victim-of-the-title-presumption-vs-community-property-presumption","status":"publish","type":"post","link":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/2019\/another-victim-of-the-title-presumption-vs-community-property-presumption\/","title":{"rendered":"Another Victim of the Title Presumption vs. Community Property Presumption"},"content":{"rendered":"\n

By Ryan C. Wood<\/a><\/p>\n\n\n\n

While we wait for the California Supreme Court to\nweigh in on the legal effect of a married couple purchasing real property\nduring marriage but taking title to the property as joint tenants sad cases\ncontinue to pile up.  Under California\nlaw two parties, whether married or not, may take title to real property as\njoint tenants.  The main feature or\nbenefit of taking title as a joint tenant is the right of survivorship that\ncomes along with it.  This is\nparticularly beneficial to married couples as it allows them to avoid going\nthrough probate upon the death of a spouse. \nThe real property just passes to the surviving spouse.  California law also provides that when title\nis as joint tenants the one half interest in the property is the person\u2019s\nseparate property and not community property. \nHere is where it gets crazy though. \nThe real property being separate property is only true under certain\ncircumstances and not all circumstances? \nIn comes the community property presumption regarding property acquired\nduring marriage.  So far various courts,\nnot the Supreme Court of California, have held in the bankruptcy context the community\nproperty presumption wins, not how the actually legal recorded title is taken\nat the time of purchase.  The actual\nlegal title is not sufficient evidence to show the married couples intent that\nthe real property acquired during marriage be each spouses separate property.  <\/p>\n\n\n\n

When married couples get divorced in community property\nstates the community property is supposed to be divided 50\/50 unless the\nspouses agree otherwise or there has been a transmutation of the property from\nbeing community property to the separate property of one of the spouses.  Simply put, transmutation laws cannot apply\nto a piece of real property acquired during marriage.  Spouses are not transferring anything when\npurchasing a house during marriage.  They\nare acquiring it and taking title as joint tenants evidencing their intent for\nthe house to be separate property\u2026\u2026..  Also,\nhow is a piece of real property titled as joint tenants where each spouse owns\na 50 percent interest not consistent with community property law and dividing\nthe community property 50\/50 upon divorce? \nSeems like it is consistent so what is the problem?  Oh wait, this is only applicable in a divorce\nand not under other circumstances like filing bankruptcy?       <\/p>\n\n\n\n

On November 8, 2018, the Ninth Circuit Court of\nAppeals entered an order certifying question to the Supreme Court of California\nas follows:<\/p>\n\n\n\n

\u201cDoes\nthe form of title presumption set forth in section 662 of the California\nEvidence Code overcome the community property presumption set forth in section\n760 of the California Family Code in Chapter 7 bankruptcy cases where: (1) the\ndebtor husband and non-debtor wife acquire property from a third party as joint\ntenants; (2) the deed to that property conveys the property at issue to the\ndebtor husband and non-debtor wife as joint tenants; and (3) the interests of\nthe debtor and non-debtor spouse are aligned against the trustee of the bankruptcy\nestate?\u201d<\/strong><\/p>\n\n\n\n

In the meantime cases are still being decided that\nprovide the community property presumption is what matters and not the clear\nand convincing evidence of a recorded title as joint tenants giving each spouse\na separate property interest in the purchased home.  In a prior blog article I provide all the different\ncases regarding this issue.  I have\nlisted them again at the end of this article. \nA recent Ninth Circuit Bankruptcy Appellate Panel cases provides some additional\nfeedback on this issue a couple interesting twists.  Unfortunately the same result was found; the\nlegal taking of title as joint tenants was trumped by the community property\npresumption.<\/p>\n\n\n\n

Why Do Bankruptcy Attorneys<\/a> Care So Much About This Issue?<\/strong><\/p>\n\n\n\n

Each spouse has the right to file for bankruptcy\nprotection even if married.  When one\nspouse files all community property and the separate property of the filing\nspouse is part of the bankruptcy estate. \nThe separate property of the non-filing spouse is not part of the assets\nthat must be listed.  If a house of a\nmarried couple has equity of $200,000 and the title is held as joint tenants we\nshould only have to list the filing spouse\u2019s portion or $100,000.  Ignoring the title of the house as joint\ntenants and calling the house community property requires us to schedule the\nequity in the house as the entire $200,000 interest even though taking title as\njoint tenants is supposed to provide each spouse has a separate property interest.  As of right now a married couple is only\nentitled to a homestead exemption to protect equity in a primary residence of\n$100,000 pursuant to California law.  So\nan interpretation of the law that says the community property presumption wins\ninstead of the title presumption creates a bankruptcy estate twice as large,\nnot exemptable\/protectable under the example above.  This creates a large obligation to creditors\nthat would not exist if the title presumption was properly followed given title\nas joint tenants under California law provides the spouses interest is their\nseparate property\u2026<\/p>\n\n\n\n

Recent\nNinth Circuit Bankruptcy Appellate Panel Case<\/strong><\/p>\n\n\n\n

In an unpublished opinion by the Ninth Circuit\nBankruptcy Panel a couple in Southern California seemingly did everything to\nprovide the real property they acquired during marriage be held as joint\ntenants, separate property and not community property.  They even had a post-nuptial agreement\nproviding additional language to strengthen their intent to have the real\nproperty be deemed separate property. \nThe problem is a bankruptcy case under chapter 7 of the Bankruptcy Code\nwas filed and what a family law attorney or estate planning attorney would\nbelieve to be true simply is not the case in the context of filing bankruptcy.  There were also some cracks in the documents\nof this married couple and that is what makes this particular case interesting.<\/p>\n\n\n\n

Facts\nof the Chapter 7 Bankruptcy Case Appealed<\/strong><\/p>\n\n\n\n

The lower bankruptcy court held regarding the\ncharacter of real property owned by the debtor at the time the bankruptcy case\nwas filed as; (1) the properties were presumed to be community property despite\nthe fact that they were held by the couple as joint tenants, and (2) Non-filing\nspouse did not produce evidence sufficient to raise a genuine issue of material\nfact regarding the character of the ownership of the properties.  The Ninth Circuit Bankruptcy Appellate Panel\naffirmed the decision and agreed with the lower bankruptcy court.<\/p>\n\n\n\n

The specific issues that are part of this current\nappeal involve a postnuptial agreement between the spouses and evidence of\nthird party family members of the filing spouse providing down payments for the\nproperties acquired during the marriage. \nWhile I believe the taking and recording of title as joint tenants is\nclear and convincing evidence of a married couples\u2019 intent to take the real\nproperty acquired during marriage as separate property that is not the current\ninterpretation.  <\/p>\n\n\n\n

In this chapter 7 case there were actually two\ndifferent properties purchased during marriage that added complications.  The couple also entered into the postnuptial\nagreement after purchasing one property and not before purchasing both\nproperties.  Unfortunately the\npostnuptial agreement did not include language addressing the purchase of the\nfirst property prior to the postnuptial agreement.  If the postnuptial agreement did say the\npurchase of the first property was to be held as separate property maybe things\nwould have been different.  The postnuptial\nagreement provided the amounts paid by third party relatives would be part of\nthe equation to determine the spouses interest in the purchased properties.  Again, there was no mention of the first\npurchased property though\u2026..  The\nbankruptcy case was originally filed as a chapter 11 reorganization and later\nconverted to a chapter 7 case.  This also\nis significant but I will not get into that other than the bankruptcy case\nbecomes a liquidation of not exempt\/protectable assets such as the two pieces\nof real property\/houses.<\/p>\n\n\n\n

Naturally the chapter 7 trustee assigned to the\nbankruptcy case properly sought to liquidate the bankruptcy estate and the question\narose as to what is part of the bankruptcy estate.  The lower bankruptcy court held that the\nhomes were part of the bankruptcy estate and the evidence presented did not\novercome the presumption of the community property.  What is a new wrinkle from most cases like\nthis was the postnuptial agreement.  The\nlower bankruptcy court held and the Ninth Circuit Bankruptcy Appellate Panel\nagreed that the postnuptial agreement did not apply given it was not recorded\npursuant to California Family Code Section 852(b), transmutation law of assets\nacquired during marriage, and under California Civil Code Section 1217, that\nunrecorded instruments are only valid between the parties to the instrument and\nthose have notice of it.  So the chapter\n7 trustee was not bound by the postnuptial agreement and the spouses intent to\nhold property as separate property.  Again\nI argue this is a misapplication of California transmutation laws given these\nproperties are acquired during marriage and the title is taken as joint\ntenants, separate property, and the recorded title is clear and convincing evidence\nof their intent.  This of course is not\nhow the law is being interpreted.  So the\nrecorded title as joint tenants does not provide notice of the spouses intent\nto third parties and the taking of title as joint tenants is not a valid\ntransmutation\u2026\u2026.. <\/p>\n\n\n\n

As a bankruptcy attorney<\/a> I hope the Supreme Court of California comes to a different conclusion on this issue soon.  As of right now there is no such thing as taking title to property as joint tenants that creates a separate property interest in the property without creating additional documentation as to the spouses intent.  There are also not clear answers to exactly what the documentation should be for a court to hold the property title as joint tenants is separate property.  Whatever that documentation is should be notarized and recorded so that all third parties have notice of the spouses\u2019 intent the hold the property as joint tenants and be entitled to separate property status under any and all circumstances; including filing for bankruptcy protection.    <\/p>\n\n\n\n

Brace v. Speier (In re Brace), 566 B.R. 13 (9th Cir. BAP 2017)<\/p>\n\n\n\n

Valli v. Valli (In re Marriage of Valli), 58 Cal. 4th 1396, 1400 (2014)<\/p>\n\n\n\n

In re Obedian, 546 B.R. 409, 422 (Bankr. C.D. Cal. 2016)<\/p>\n\n\n\n

Hanf v. Summers (In re Summers), 332 F.3d 1240, 1243 (9th Cir. 2003)<\/p>\n","protected":false},"excerpt":{"rendered":"

Under current California law the community property presumption trumps the title presumption regarding title as joint tenants for property acquired during marriage.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[54],"tags":[20,172,337,339,338],"_links":{"self":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/963"}],"collection":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/comments?post=963"}],"version-history":[{"count":3,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/963\/revisions"}],"predecessor-version":[{"id":966,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/963\/revisions\/966"}],"wp:attachment":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/media?parent=963"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/categories?post=963"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/tags?post=963"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}