By: Kevin J. Parker
In re Brace, 470 P.3d 15 (Cal. 2020), a California married couple acquired real property with community funds, and took title as “husband and wife as joint tenants.” When the husband filed a chapter 7 petition in bankruptcy, the bankruptcy trustee sought to include the property in the debtor’s estate. The Bankruptcy Code provides that community property is part of the bankruptcy estate. The bankruptcy court found that the couple acquired the property with community assets and thus the property was presumptively community property. The couple objected and appealed to the Ninth Circuit, which certified questions to the California supreme court. The California supreme court explained that if the property is 50/50 separate property of each spouse, then the trustee can reach only the debtor spouse’s 50 percent share; but if the property is community property, then the trustee can reach all the property, including the non-debtor spouse’s share. The court further held that as to joint tenancy property acquired with community funds on or after January 1, 1975, the property would be presumptively community in character. The court further held that the nature of proof necessary to establish transmutation from community property to another form of ownership (and thus defeat the presumption of community property) would depend on when the property was acquired (due to differences in applicable statutes). If the property was acquired before 1985, the parties could show a transmutation by an oral or written agreement or a common understanding. But for joint tenancy property acquired with community funds on or after January 1, 1985, a valid transmutation would require a written declaration that expressly states that the character or ownership of the property is being changed.