Family
Jun. 14, 2005
Court Must Balance Written, Oral Proof in Divorce Cases
Focus Column - Family Law - By Charlotte K. Goldberg - After hearing oral arguments on June 1, the California Supreme Court still faces the difficult challenge in deciding Marriage of Benson , 114 Cal.App.4th 835 (2003), review granted (March 3, 2004) . The challenge is how to balance a strict writing requirement for transmutation of spousal property with the demands of equity.
Charlotte K. Goldberg
Focus Column
Family Law
By Charlotte K. Goldberg
After hearing oral arguments on June 1, the California Supreme Court still faces the difficult challenge in deciding Marriage of Benson, 114 Cal.App.4th 835 (2003), review granted (March 3, 2004). The challenge is how to balance a strict writing requirement for transmutation of spousal property with the demands of equity.
In Benson, the husband, Douglas, and wife, Diane, owned a home that was given to them by Diane's father. Douglas had a pension from his job. The home and the pension were both community property, the home was valued between $400,000 and $500,000, and the pension at $91,000.
During their marriage, Douglas signed a deed that transferred his community interest in the home to his wife's trust, thereby transmuting their community property home into the Diane's separate property. At trial, Douglas testified that he agreed to sign the deed transferring his interest to Diane only because she orally agreed to give up her community interest in his pension benefits. Even though Diane testified that there was no such agreement, the trial court believed Douglas and found that they had such an oral agreement.
The issue before the Supreme Court is whether that oral agreement was sufficient to transmute Douglas' community property pension into his separate property.
During marriage, spouses may change the character of their separate property and their community property. Those interspousal changes in the character of property are called "transmutations." Before 1985, there was no writing requirement for transmutation of spousal property. Thus, after the death of a spouse or during dissolution proceedings, litigation often focused on whether there had been an oral or implied agreement that transmuted spousal property.
In 1985, the Legislature opted for formal requirements to demonstrate a transmutation. As of Jan. 1, 1985, under Family Code Section 852(a), a transmutation of spousal property is "not valid unless made in writing by an express declaration" by "the spouse whose interest in the property is adversely affected."
The Supreme Court first interpreted this strict Statute of Frauds requirement in Estate of MacDonald, 51 Cal.3d 262 (1990). In that case, the wife's signature on an IRA consent form was considered insufficient to transmute community property into the husband's separate property. The language of the consent form was not clear enough to inform the wife that she was giving up her interest in the community property IRA funds. Thus, her signing the consent form was not an "express declaration."
An argument was made that the parties' intentions, not the written document, should control because it seemed clear that the wife wanted her husband to have the IRA funds as his separate property. According to the court, the Legislature intended to eliminate reliance on extrinsic evidence to show a spouse's intent. The statutory language, "express declaration," indicated that only the written documents should control. Thus, the court also interpreted Family Code Section 852(a) to preclude introduction of extrinsic evidence of the spouses' intentions.
Application of the strict MacDonald rules to the Benson facts would result in one valid and one invalid transmutation. The deed that Douglas signed clearly would meet the "express declaration" requirement and thus his community interest was transmuted into Diane's separate property. The oral agreement that Diane would waive her rights in Douglas' pension would not meet the "express declaration" requirement and the pension would remain community property and not be transmuted into Douglas' separate property.
Clearly, this seems an inequitable result. Diane will receive the home worth more than $400,000. In addition she will retain her rights to half of Douglas' pension.
To avoid the inequity, the Court of Appeal in Benson held that the MacDonald strict writing requirement could be overcome by the traditional "partial performance" exception to the Statute of Frauds. Under that exception, the written deed and the oral agreement could be viewed as one transaction. Douglas performed his part of the transaction by transferring his interest in writing and Diane must be held to her part of the transaction by waiving her rights to his pension. According to the oral agreement, Douglas' pension would be his separate property.
The Court of Appeal relied on Hall v. Hall, 22 Cal.App.3d 578 (1990). Hall involved an oral premarital agreement and the facts cried out for equity. Before Carol married Aubrey, they orally agreed that Carol would give up her job, apply for Social Security at age 62 and give Aubrey $10,000 in exchange for Aubrey's promise that she could live in his house until she died.
Carol fulfilled her side of the bargain. Before the documents were signed giving Carol a life estate in the house, Aubrey suddenly died. Even though premarital agreements and transmutations must be in writing, the Court of Appeal relied on traditional exceptions to the Statute of Frauds to overcome the writing requirement. That allowed Carol to receive a life estate based on the oral agreement.
The Court of Appeal in Benson also relied on legislative comments to Section 852 that stated that "the ordinary rules and formalities applicable to real property transfers apply also to transmutations of real property between the spouses." That statement referred to the Statute of Frauds, and the Court of Appeal inferred that included the "traditional exceptions" to the Statute of Frauds. The applicable exception was the doctrine of partial performance, which allowed oral transmutation agreements. Therefore, the Bensons' oral agreement was admissible to show that Diane cannot now claim rights to Douglas' pension.
Diane Benson argues that a more recent Court of Appeal decision that arose in the context of divorce controls. In Marriage of Campbell, 74 Cal.App.4th 1058 (1999), the Court of Appeal interpreted MacDonald strictly and refused to consider evidence of an oral agreement. The issue was whether husband Robert's separate property home was transmuted into community property.
The wife, Jean, had used her separate property to improve that home. She claimed they had an oral agreement to add her name to the title to the property. Her name was not added before the couple separated. According to the Court of Appeal, this was a case where the documents controlled. Since there had been no written "express declaration" that Robert had transmuted his separate property into community property, there was no valid transmutation. Under MacDonald's interpretation of the statutory language, the extrinsic evidence of an oral agreement was inadmissible. Campbell stands for the proposition that the documents control and extrinsic evidence of oral agreements is prohibited.
The major problem with allowing an exception to the strict writing requirement is that the exception could potentially swallow the rule. The Legislature clearly intended that the days of "easy" transmutation were over when Family Code Section 852 was enacted in 1985. Allowing equitable exceptions to the strict writing requirement would flout that intention. Those equitable exceptions, especially in divorce cases, could lead to increased litigation over what the spouses said and what their intentions were.
On the other hand, relying solely on the documents and ignoring the overall picture could result in the inequity that the traditional exceptions to the Statute of Frauds were intended to address.
Oral arguments in the Benson case took place in Los Angeles on June 1. Although it is difficult to predict how the court will decide, the justices did seem to want to resolve the case without opening the door to exceptions to the MacDonald rules.
Justice Ming Chin questioned whether the home was really community property or the wife's separate property - it was after all the wife's father who had given the house to the "couple." If it was her separate property, then the supposed inequity evaporates. Along this line, Justice Marvin Baxter suggested that Douglas' remedy could have been to try to overturn the deed based on fraud or undue influence. That possibility seems to be precluded by the trial court's finding that the deed had validly transmuted the home to the wife's separate property.
Baxter also questioned whether allowing exceptions to the strict writing requirement would open the door to litigation over "pillow talk" and in essence overrule MacDonald. Justice Carlos Moreno inquired whether the Legislature intended to retain the traditional exceptions to Statute of Frauds. It was noted that the comments to Section 852 included the "ordinary rules and formalities," a reference to the Statute of Frauds and its exceptions.
Justice Janice Rogers Brown questioned whether this was really a case of "equitable estoppel" rather than part performance or whether Family Code Section 721, concerning spousal fiduciary duties, applied to the case. The issue, according to the attorneys, is limited to the narrow question of whether the particular Statute of Frauds exception of partial performance applies to the transmutation statute.
The justices must now resolve the difficult question of how to balance the strict writing requirement for transmutation of spousal property against the equitable considerations at work in the Benson case.
Charlotte Goldberg is a professor of law at Loyola Law School in Los Angeles and author of California Community Property, Examples and Explanations (2005).
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