Probate litigation that arises from the death of a spouse can involve an array of competing presumptions, especially in situations spouses have property acquired before marriage or where an individual has remarried after having children in another marriage. In a recent case, Estate of Wall, 68 Cal. App 5th 168 (August 24, 2021), the Court of Appeal sorted out some of these presumptions, clarifying which prevail over others and identifying issues that probate litigators need to consider when handling such disputes.
In disputes concerning the assets of a deceased spouse—for example, where a surviving spouse claims a right to property that the decedent sought to leave to children from a prior marriage, or when a spouse dies intestate—an initial question is whether the property was transmuted, e.g. did the surviving spouse effectively transfer her separate and/or community property to the decedent, as his separate property, so that the decedent could transfer it to another person through his will or trust? Family Code Section 852 provides that a transmutation is not effective unless made in writing by an express declaration. While no “magic words” are required, the courts have consistently held that the transmutation must be clear and unambiguous. E.g., Estate of Russell, 69 Cal. 2d 200, 211 (1968) (if “the written language is fairly susceptible of two or more constructions,” it is ambiguous and therefore not a transmutation). More recent cases demonstrate just how clear the writing must be; for example, In re the Marriage of Begian and Serajian, 31 Cal. App. 5th 506 (2018), the Court of Appeal held that a “Trust Transfer Deed,” by which husband and wife transferred property to wife as a “bona fide gift” and a “grant” by husband, was not a transmutation of husband’s community property to separate property. The question of transmutation can matter even when one spouse owned the property before marriage, because community assets may have contributed to payments or improvements on the property or the couple may have obtained refinance loans together. Other complications arise where spouses have business interests when they marry.
Once the threshold question of transmutation is cleared, however, the competing presumptions come into play. In Wall, the decedent purchased a house during his second marriage, but the house was titled in his name alone, as separate property. He obtained a mortgage in his own name, and paid the mortgage entirely from separate property funds. His wife signed a quitclaim deed to confirm that she had no ownership interest. He died intestate, and his children challenged his wife’s claim that the house was community property. The trial court ruled in the wife’s favor. The Court of Appeal affirmed, but only after finding that the trial court applied certain presumptions incorrectly.
Family Code Section 760 creates a rebuttable presumption that property acquired during marriage is community property. Evidence Code Section 662 creates a presumption that the holder of title to property is the full beneficial owner — also rebuttable, but only by clear and convincing evidence. In divorce cases, courts have long held that the community property presumption prevails over title. See In re Marriage of Valli, 58 Cal. 4th 1396, 1413-14 (Chin, J., concurring) (2014). The California Supreme Court recently held that this rule applies beyond divorce cases. In re Brace, 9 Cal. 5th 903, 927-928 (2020) (applying community property presumption over form of title presumption in dispute between married couple and bankruptcy trustee). But, as the Court stated in Brace, “the form of title controls at death.” Id. at 931. Accordingly, in Wall, the Court of Appeal found that the trial court incorrectly applied the community property presumption to determine the rights of the decedent’s legal heirs, and should have applied the presumption of title.
Why, then, did the Court of Appeal in Wall affirm the trial court’s decision that the home titled as decedent’s sole and separate property was actually community property? Because of another presumption: Where an interspousal transaction advantages one spouse over another the presumption of undue influence applies, because under Family Code Section 721 spouses are fiduciaries of each other. In an unpublished portion of the opinion, the court found substantial evidence to support the trial court’s finding that this presumption had not been rebutted. Notably, the trial court applied the presumption of undue influence even though there was no showing of unfair advantage; in other cases, the Court of Appeal has held that an unfair advantage is prerequisite to applying the presumption of undue influence. E.g., In re Marriage of Burkle, 139 Cal. App. 4th 712, 731 (2006). But in Wall, that was not the case. In future decisions, the appellate courts may clarify when this presumption applies: To any transaction between spouses, or only those shown to be unfair? To a transfer deed that expressly states it is a gift? But, at least until such questions are resolved, this last presumption creates significant factual issues that a probate litigator must consider when dealing with disputes over a spouse’s property, including in particular how to rebut a presumption of undue influence when the alleged influencer is deceased.
Frank Cialone is a partner at Shartsis Friese LLP. He represents clients in trust and estate litigation, and in disputes regarding the ownership and management of closely-held businesses.