All posts tagged in re Brace

Brace & Beyond: Joint Tenancy & Transmutation, by Cathy Moran

Brace & Beyond: Joint Tenancy & Transmutation, by Cathy Moran

For Californians, the CA Supreme Court’s decision in Brace this summer upended our understanding of joint tenancy and community property.

For decades, we “knew” that a property couldn’t be both joint tenancy and community property. Siberell.  And for those of us in the 9th Circuit, we “knew” that when married folks acquired property with title taken as joint tenants, the property was characterized as the separate property of each spouse when either spouse filed bankruptcy. Summers.

Then, Brace tells us that a married couple taking title to real property as joint tenants is not sufficient, without something more, to transmute the property into the separate property of each spouse despite the clear expression of joint tenancy in the deed. Take a closer look at Brace from my colleague Wayne Silver.

So, where does that leave the hundreds of thousands of married couples who, to the extent they thought about it at close of escrow, believed they each held a separate property joint tenancy interest in the property.

The consequences of community property

While it’s easy to think about community property as an issue only in the dissolution of a marriage, the characterization of property drives issues of tax, probate, and, the focus here, debtor-creditor rights in and out of bankruptcy.

Two statutes, one federal and one state, lie at the heart of the issue . California Family Code 910 makes community property liable for debts incurred by either spouse before or during marriage. Separate property, such as we thought joint tenancies were, is liable only for the debts of the spouse who holds the property (and perhaps, for debts related to the necessities of life provided to the other spouse.)

The federal statute involved, Bankruptcy Code 541, brings all of the community property into the bankruptcy estate even when only one spouse files bankruptcy.  Property of the estate gets administered for the benefit of creditors with claims on the community, even when only one spouse files bankruptcy.

So, treating joint tenancy property held by spouses as community property doubles the fraction of the property exposed to one spouse’s debts, and exposes all of a joint tenancy property to inclusion in a bankruptcy estate.

Why the form of title fails as a transmutation

Up until Brace, cases held that the act of taking title to real property during marriage as joint tenants was sufficient to overcome the presumption of Family Code 910. Even when the down payment and the debt service all came from community funds, the form of title as joint tenants effectively transmuted those funds into the separate property of the spouses, shared equally. Read more…

Update on In re Brace – pending at the California Supreme Court

This is the case where the California Supremes will decide whether property held by husband and wife as joint tenants is owned 50-50 by each or is owned as community property.   California law presumes both.  The BAP agreed with Judge Scott Yun and ruled that the ”record title presumption of Cal. Evid. Code § 662″ does not trump “the community property presumption of Cal. Fam. Code § 760″ citing Valli v. Valli (In re Marriage of Valli), 58 Cal. 4th 1396 (2014).

The 9th Circuit punted the issue over to the California Supreme Court.  They are still doing briefing so we are probably a ways from a result.  The Supremes must rule within 90 days after oral argument but there is no deadline re when oral argument must be set.

 IN RE CLIFFORD ALLEN BRACE, JR. 
Case Number S252473 (See docket below) Read more…