Los Angeles Daily Journal, Vol.118, Issue 90, May 10, 2005
In a blow to romantically inclined, generous, and guilt-ridden spouses throughout California, the Legislature has amended Family Code § 2640 to make gift-giving and -receiving all but impossible for the unsavvy.
Effective January 1, 2005, subsection (c) has been added to Family Code § 2640. That subdivision provides:
(c) A party shall be reimbursed for the party’s separate property contributions to the acquisition of property of the other spouse’s separate property estate during the marriage, unless there has been a transmutation in writing pursuant to Chapter 5 (commencing with Section 850) of Part 2 of Division 4, or a written waiver of the right to reimbursement. The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division. The amendment was intended to close a “loophole” in then-current Family Code § 2640, which required reimbursement to a party contributing separate funds to community property, and which required reimbursement to the community when community funds were used toward the acquisition of separate property, but did not provide for reimbursement for one party’s contribution to acquisition of the other’s separate property.
This anomaly was discussed in In re Marriage of Cross (2001) 94 Cal.App.4th 1143. In Cross, a husband expended approximately $40,000 of his separate property money for capital improvements to the parties’ residence, which was the wife’s separate property. In the subsequent dissolution of marriage, the husband sought reimbursement of that $40,000, but his request was denied by the trial court. The Court of Appeal affirmed, holding:
Both the clear language of the statute and the cases interpreting it address situations where one spouse has used his or her separate property to purchase or improve community property. Nothing in section 2640 gives one spouse a right of reimbursement for separate property contributions made to the other spouse’s separate property. If the Legislature had intended to give a spouse a right to reimbursement for separate give a spouse a right to reimbursement for separate property contributions made to the other spouse’s separate property, the Legislature could have included language to achieve this intent. It did not. [94 Cal.App.4th at 1147 (citations omitted).]
Although the Legislature analyzed the pending bill and removed some problems created by its original wording, the burdens imposed on a would-be gifting spouse were never addressed. For example, the bill was amended to remove language which would have permitted reimbursement of separate property payments to reduce the other party’s separate debt, or for property taxes and interest associated with the property, and in any case reimbursement would not have been limited to the equity in the subject property at the time of dissolution (a limitation on reimbursement of separate contributions to community assets, In re Marriage of Neal (1984) 153 Cal.App.3d 117). The Senate Judicial Committee commented that, in its original form, the bill was overbroad. As amended, subsection (c) now mirrors the reimbursement rules for separate property contributions to community property.
What is the impact of Family Code § 2640(c) on an eleemosynary-minded spouse? For one thing, we can no longer say of gifts between spouses, “It’s the thought that counts.” What really counts is having a written waiver or transmutation in writing. Absent one or the other writing, spouses cannot effectively and permanently make gifts to one another.
Prior to the amendment to Family Code § 2640, gift-giving was considerably simpler. In In re Marriage of Frapwell (1975) 49 Cal.App.3d 597, the husband simply bought a car and took title in his wife’s name; the transaction was deemed a gift to the wife. Now if, say, Elvis wanted to use his separate property royalties from “Hound Dog” to buy a pink Cadillac for Priscilla, as a gift, he would have to give her something else as well — a written waiver or transmutation, hardly a romantic addendum to an anniversary or birthday card.
The requirement of a written waiver has long been the rule in the case of separate property contributions to community property. In re Marriage of Witt (1987) 197 Cal.App.3d 103, held that former Civil Code § 4800.2 (now Family Code § 2640) requires reimbursement, absent a written waiver, even if the party contributing separate property intended a gift:
“[W]e hold that [former Civil Code section 4800.2] creates a substantive right of reimbursement in the contributing spouse which can be relinquished only by an express written waiver. In the absence of such a written waiver the donative intent of the contributing spouse does not bar reimbursement for separate property contributed after January 1, 1984. [197 Cal.App.3d at 108]
Exactly what suffices for a waiver under Family Code § 2640(c) may be different from a subsection (a) waiver. Subsection (a) uses the term “a writing that has the effect of a waiver”; subdivision (c) uses the terms “transmutation in writing” and “written waiver of the right to reimbursement.” These latter phrases appear more stringent than those of subdivision (a). For example, even prior to the recent amendment, a “gift” of jewelry was subject to the “transmutation in writing” requirement, if the jewelry is “substantial in value taking into account the circumstances of the marriage.” In re Marriage of Steinberger (2001) 91 Cal.App.4th 1449.
In In re Marriage of Barneson (1999) 69 Cal.App.4th 583, the husband “transferred” stock to his wife, but did not state that the transfer changed the character of the securities. The Court of Appeal held that a transfer alone does not constitute a transmutation; that requires “language which expressly states that the characterization or ownership of the property is being changed.” 69 Cal.App.4th at 587. So, the Frapwell husband’s purchase of a car in his wife’s name would probably not have accomplished a transmutation.
As to what comprises a waiver or “a writing that has the effect of a waiver,” again the writing evidencing the transfer, without more, is insufficient. A deed itself was held insufficient in In re Marriage of Fabian (1986) 41 Cal.3d 440, as was a deed bearing a notation that it was a “gift” in In re Marriage of Perkal (1988) 203 Cal.App.3d 1198. Those documents also would not pass muster as “a written waiver of the right to reimbursement” under the more specific language of subdivision (c).
Can Family Code § 2640(c) constitutionally be applied to pre-January 1, 2005 transactions? Should Kobe have waited until this year to give Vanessa the ring? The issue of retroactivity was the subject of vigorous debate following the enactment of former Civil Code § 4800.2 (and companion section 4800.1 dealing with the community property character of property acquired prior to marriage in jointly titled form). The California Supreme Court held that, as to separate property contributions to community property, former Civil Code § 4800.2 cannot be applied retroactively to cases pending on January 1, 1984 (the effective date of the statute), but a subsequent appellate decision has stated, albeit in dictum, that the constitution does not preclude application of that statute to property acquired prior to January 1, 1984. In re Marriage of Hilke (1992) 4 Cal.4th 215, 222. Conra, In re Marriage of Heikes (1995) 10 Cal.4th 1211.
The holding of Fabian was based on the principle that retroactive application of former Civil Code § 4800.2 would impair vested property rights, since the statute reversed the long-established rule that separate property contributions to the acquisition of community property were deemed gifts; hence, the parties were entitled to rely on the prior rule as to dissolutions which were final prior to January 1, 1984:
It is difficult to imagine greater disruption than retroactive application of an about-face in the law, which directly alters substantial property rights, to parties who are completely incapable of complying with the dictates of the new law. [41 Cal.3d at 450]
That very reasoning seems pertinent to subdivision (c) as well, since the amendment effects “an about-face in the law.” Further, application of the amendment to separate-to-separate transactions which occurred prior to January 1, 2005, also appears constitutionally suspect, since the recipient’s expectations are created at the time of the “gift.”
Despite the uncertainties inherent in Family Code § 2640(c), one principle seems unassailable: Now, more then ever, it’s better to give than to receive, because, absent a waiver or transmutation in writing, the act of giving is illusory and subject to reimbursement.
