The testimony usually proceeds as follows: "[he/she] said when we bought the [fill in the expensive item (car, house, jewelry, jet skis, etc.)], 'I hope you enjoy your birthday gift'" Therefore, the gift receiver argues at the time of dissolution "it is separate property and not community property because it was a gift."
Merriam-Webster defines "gift" as "something voluntarily transferred by one person to another without compensation." The legal definition of the word "gift" is generally the same as Merriam-Webster. If both the common and legal meaning of "gift" are the same, why are gifts given during marriage not always a gift? Because in dissolution proceedings, not all gifts are treated equally. So when is a gift really a gift?
Trouble on the way to the alter
The issue of gifts between spouses actually arises before the parties are even married, and thus, not actually spouses. The engagement ring poses the first real issue about gift-giving. California Civil Code Section 1590, states "Where either party to a contemplated marriage in this State makes a gift of money or property to the other on the basis or assumption that the marriage will take place, in the event that the donee refuses to enter into the marriage as contemplated or that it is given up by mutual consent, the donor may recover such gift or such part of its value as may, under all of the circumstances of the case, be found by a court or jury to be just." In Priebe v. Sinclair, 90 Cal. App. 2nd 79, 86 (1949), the court found that an engagement ring given in contemplation of marriage is not a gift and thus the ring (or its value) is recoverable from the donee if the donee ends the engagement. However, if the donor refuses to enter the marriage, then the ring becomes a gift, and the donee is entitled to keep the property. See Simonian v. Donoian, 96 Cal. App. 2nd 259, 262 (1950). After the marriage is completed, the ring is deemed a gift and belongs to the donee.
"Going to the chapel and we're gonna get married..."
While the Dixie Cups song "Chapel of Love" speaks to a couple's happiness on their wedding day, the Dixie Cups left it to the California Legislature to define the community property issues thereafter. Generally, "all property ... acquired by a married person during the marriage ... is community property." California Family Code Section 760. Characterization of property for purposes of California's community property law refers to the process of classifying property as separate, community, or quasi-community. In re Marriage of Haines, 33 Cal. App. 4th 277, 291 (1995). This classification process is necessary to determine each spouse's rights and is an integral part of the division of property on marital dissolution. Id.; In re Marriage of Valli, 58 Cal. 4th 1396, 1399-1400 (2014).
California Family Code Section 770(a) provides: "Separate property of a married person includes all of the following: (2) All property acquired by the person after marriage by gift, bequest, devise, or descent." Under Sections 760 and 770, the property's character is fixed as of the time it is acquired, and its character continues until changed in a manner recognized by law, such as by agreement of the parties. In re Marriage of Rossin, 172 Cal. App. 4th 725, 732 (2009). While this seems straightforward (i.e., the time of purchase controls its designation as community or separate property), what happens when parties use community funds to buy the gift? Is it still a gift? What about when parties use community funds to buy a house on their anniversary but place the property in only one party's name? Is that a gift? Does Section 760 and the presumption of community property control? Or does the Section 770(a)(2) gift presumption control?
Three California Civil Code sections define personal property gift-giving, California Civil Code Sections 1146, 1147 and 1148. Civil Code Section 1146, states: "A gift is a transfer of personal property, made voluntarily, and without consideration." Civil Code section 1147 states: "A verbal gift is not valid, unless the means of obtaining possession and control of the thing are given, nor if it is capable of delivery, unless there is an actual or symbolical delivery of the thing to the donee." Civil Code Section 1148 states: "A gift, other than a gift in view of impending death, cannot be revoked by the giver."
In Jaffe v. Carroll, 35 Cal. App. 3d 53, 59 (1973), the court stated that case law defines the elements of a gift as "(1) competency of the donor to contract; (2) a voluntary intent on the part of the donor to make a gift; (3) delivery, either actual or symbolical; (4) acceptance, actual or imputed; (5) complete divestment of all control by the donor; and (6) lack of consideration for the gift." As applied to our hypothetical, one party says to the other, "Happy Anniversary, I bought you this house as an anniversary gift." One party expressly said it was a "gift" and was not purchased in view of impending death. Therefore, its gift (and separate property) status cannot be revoked, right?
The answer hinges upon the transferor's conduct and intent. Burkle v. Burkle, 141 Cal. App. 4th 1029, 1036. (2006).
Presumptions about the burden of proof
Generally, all property during the marriage is community property. California Family Code Section 760. This, however, is a rebuttable presumption. The party challenging the characterization of the property has the burden to rebut the presumption. In re Marriage of Braud, 45 Cal. App. 4th 797, 822-26 (1996); In re Marriage of Mix, 14 Cal. 3d 604, 611-12 (1975). "Since this general community property presumption is not a title presumption, virtually any credible evidence may be used to overcome it, including tracing the asset to a separate property source, showing an agreement or clear understanding between parties regarding ownership status, and presenting evidence the item was acquired as a gift." Haines, 33 Cal. App. 4th at 290. A spouse's claim that property acquired during a marriage is separate property must be proven by a preponderance of the evidence. Valli, 58 Cal. 4th at 1400.
Conceptually, this appears to be straightforward. The presumption is all property acquired during the marriage is community property unless the property can be traced back to a separate property source for recharacterization or demonstrated as a gift. The challenger of the presumptive characterization has the initial burden of proof. Once met by the challenger, the characterization's proponent has to prove why Section 760 or 770 should, or should not, apply to that piece of property. But what about Evidence Code Section 662?
Brace for impact
In direct contrast to Family Code Section 760, California Evidence Code Section 662 states: "The owner of the legal title to property is presumed to be the owner of the full beneficial title. The presumption may only be rebutted by clear and convincing evidence." As such, if the property is recorded in one spouse's name alone, Section 662 appears to indicate that title controls, irrespective of when the property was purchased, even if during the marriage. Only clear and convincing evidence can be offered to rebut that presumption.
In In re Brace, 9 Cal. 5th 903, 915 (2020), the court held that Evidence Code Section 662 is not a separate property exception to Family Code Section 760. The court held that the statutory transmutation requirements apply to purchases made by one or both spouses from a third party using community funds and that Evidence Code Section 662, assuming it ever applies in marital dissolution proceedings, does not apply when it conflicts with the transmutation statutes. Id. at 928; Valli, 58 Cal. 4th at 1406.
The Brace court said, "[i]t would carve a major hole in the community property system to hold that Evidence Code section 662, a general statute that addresses the import of legal title -- and not Family Code section 760, a statute that specifically addresses the characterization of property acquired during marriage -- governs the characterization of property acquired during marriage for all purposes other than divorce." Brace, Cal. 5th at 928. The court added, "[i]n the absence of a statute that expressly restricts the applicability of the community property presumption to dissolution actions, we decline to engraft such a major limitation onto Family Code section 760. Indeed, to conclude that Evidence Code section 662 and not Family Code section 760 applies outside the context of divorce would run counter to the intent of the pivotal 1973 legislation that prospectively eliminated separate property inferences from form of title." Id. at 929.
Based on Brace, the issue of property characterization under Section 760 is conclusive unless there is a transmutation, which would then change the property's characterization.
Transmutation allows married persons to convert their community property to separate property, or vice versa, of either spouse by written agreement or transfer. California Family Code Section 850(a) and (b). As stated in, In re Marriage of Bonvino, 241 Cal. App. 4th 1411, 1428 (2015), "To address the problem of unreliable evidence in transmutation cases, the Legislature adopted the requirements ... now contained in sections 850 through 853."
California Family Code Section 852(a) provides, in pertinent part: "A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." However, California Family Code Section 852(c) states that: "This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made, and that is not substantial in value taking into account the circumstances of the marriage."
That clarifies the issue altogether. A gift is not a gift but rather community property unless the giving party, in writing, says that they are giving it as a gift and waiving any claim to it. As such, a comment such as "Happy Anniversary, I bought you this house as an anniversary gift" is no longer sufficient in and of itself. Unless the property is given as a gift.
The ring that ended it all
No, not the ring that Frodo Baggins cast back into the fires of Mount Doom in the Lord of the Rings trilogy and brought about Sauron's destruction. In In re Marriage of Steinberger, 91 Cal. App. 4th 1449 (2001), the court brought clarity to disputes about valuable gift-giving between spouses, whether it be a ring or other valuable items. In Steinberger, Husband gave Wife an expensive diamond ring valued at $12,500 for their fifth wedding anniversary. During their dissolution proceedings, Husband argued that the ring was community property as his transfer to her did not fulfill the written transmutation requirements of Section 852(a). Wife argued that the ring was a gift under Section 852(c) and, therefore, her separate property. It was undisputed that the ring was purchased during the marriage, and Husband acquired the ring using community property funds. Id. at 1464. The only writing from Husband to Wife was an anniversary card.
In rendering its decision in Steinberger, the court "relied on the Law Revision Commission [which] stated as follows: 'California law permits an oral transmutation or transfer of property between the spouses notwithstanding the statute of frauds. This rule recognizes the convenience and practical informality of interspousal transfers. However, the rule of easy transmutation has also generated extensive litigation in dissolution proceedings ... In the case of personal property 'gifts' between the spouses, gifts of most items such as household furnishings and appliances should be presumed community, and gifts of clothing, wearing apparel, jewelry, and other tangible articles of a personal nature should be presumed separate (unless large or substantial in value). These presumptions most likely correspond to the expectations of the ordinary married couple." Id. at 1465-66
As such, the Steinberger court determined that "Section 852, as enacted, makes it clear that the Legislature chose to balance the various policy concerns (allowance for convenience and informality within marriages, while preventing or minimizing disputes, fraud and perjury) by enacting a clear, bright-line test regarding transmutations of property." As such, the court found that it would be improper not to consider the transmutation requirements of Section 852(a) for jewelry that was substantial in value, taking into account the circumstances of the marriage. Id at 1466.
So is it a gift or isn't it?
Steinberger's lesson is to examine both the alleged gift (i.e., clothes, jewelry, car, home) given and the value of the gift in relation to the parties' financial situation. Each gift and each dissolution proceeding are different. So is it a gift or isn't it? It depends...