In re Brace – California Supreme Court hears oral argument about what constitutes community property

My previous post on In re Brace is here.

The trustee was represented by Ed Hays, Marshack Hays LLP.  This is his post on social media.

Today, I was fortunate to be able to appear (virtually) and present oral arguments in a case before the California Supreme Court.  It was a very cool experience.  It took me 28 years to get a case before the high court and then Covid-19 kept me from appearing in person.  Hopefully, it won’t take as long to get another chance where I can appear in person.

What was the case about?

Whether property acquired during marriage in joint tenancy is community property or separate property.  California law generally presumes that all property acquired marriage is community in character. Community property is liable for debts that arose during marriage.  Back in the 1930s, the California Supreme Court held that property acquired in joint tenancy created separate property interests.  If one spouse got a judgment against them, the creditor could pursue all their separate property and all community property but not the non-debtor spouse’s separate property. The 9th Circuit Court of Appeals later reached the same result.  But, in 2014, the California Supreme Court decided the Franki Valli case which held that all property acquired during marriage was presumptively community absent a written transmutation agreement to change its character. We then built off the Valli decision to argue that the old Supreme Court and 9th Circuit cases were no longer good law. We won before the bankruptcy court. The bankruptcy appellate panel affirmed in a published decision. On further appeal, the 9th Circuit certified the issue to the Supreme Court and asked it to declare what is California law. So, it was a bit of a circuitous route but certainly worth the ride.

The California Supreme Court is required to rule within 90 days of oral argument.  I personally think they will stick with In re Valli and rule that the property is community property even though title is held as joint tenants.

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