In re Marriage of Lafkas Summary

 

Opinion published on 6-16-15

 

Factual Summary

In In re Marriage of Lafkas, Husband formed a real property investment partnership with two friends in 1972.  Each partner received a one-third interest.  The partnership later purchased a property in Monrovia which was sufficient to meet all the property’s expenses.  Husband was listed as an unmarried man on the statement of partnership.  Husband married Wife in 1990.

 

In 1995, the partnership in a tax deferred exchange bought a property in Riverside.  The Riverside property’s cost exceeded the funds realized from the Monrovia sale.  The partners applied for a loan to finance the balance of the purchase price.  Husband believed Wife was required to participate in the transaction.  She was added to the partnership as a joint holder of a one-third interest with Husband.  The agreement was then recorded with the state.  Ten months later Husband and Wife separated.  Husband believed he owned one-third of the Partnership before and after the modification.  He never intended to change its character.    

 

Trial Court’s Ruling

 

The trial court found the modification amounted to a new partnership agreement and the Riverside property was community property.  Key to the court’s determination, the partnership agreement referred to the parties as “Husband and Wife.”  That statement satisfied the court there was a transmutation under section 852, subdivision (a).  The court also found it was never Husband’s intent to change the character of his separate property.  Husband was ordered to pay $195,500 in attorney’s fees to Wife.  Husband appealed. 

 

Decision on Appeal

 

On appeal, Wife argued the joint title presumption under section 2581 required the trial court find the partnership was community property.  The appellate court reviewed the legislative intent behind sections 2581 and 852.  It noted the legislature’s comment, “The requirement of a writing provides a reliable test by which to determine the understanding of the parties.  It seeks to prevent the abuses and unpredictability[.]”  The appellate court found the requirements for a valid transmutation must be satisfied before the title presumption under 2581 applied.  With that principle now established, the court went on to resolve the controversy between the parties. 

 

The appellate court re-stated the oft cited rule transmutation agreements under section 852 are interpreted without resort to extrinsic evidence.  In other words intent is irrelevant.  “The express declaration must unambiguously indicated a change in character or ownership of property.”   The agreement between Husband and Wife signed did not meet that requirement.  “A valid transmutation requires more than simply naming one or both spouses as the owner in a title document.”  The court agreed with Valli that language must exist that shows the adversely affected party understood that he or she changed the character of their property.  That language was not present in the subsequent partnership agreement.

 

The appellate court reversed the partnership’s community property characterization.  It also reversed the fees order.  The case was remanded for the trial court to consider whether loans extended to acquire the Riverside property were made in reliance upon community assets