Pros and Cons of Transmutation Agreements

The term “transmutation” means “converts.” In the context of marriage, “transmutation” is a transaction between spouses by which the character of personal or real property is changed in one of three ways:

  1. Community Property vs. Separate Property
  2. How Is Transmutation of Property Accomplished?
  3. Unintentional Transmutation
  4. What Are the Pros and Cons of Transmutation?
  5. Do I Need a Transmutation Agreement?
  6. Do I Need a Lawyer for Issues Involving Transmutation?

Community Property vs. Separate Property

There are two ways married couples can hold property in the United States. One is called “community property” or “marital property,” and the other is called “equitable property” or “separate property.”

Community property generally refers to any property or assets a couple obtains during their marriage and owns together. Community property includes:

In a community property state, all the money and property collected or generated during the marriage is owned by both parties and will be divided equally in a divorce. Nine states employ community property rules. These are:

The remaining states are ”equitable property” or “separate property” states. Here, the court is not required to divide all property and debt equally between spouses. Rather, the court will divide any property in a manner that is fair to both parties. The court will consider each spouse’s age and standard of living.

Property that remains separate during a marriage includes:

How Is Transmutation of Property Accomplished?

There are five ways in which transmutation can occur:

When transmutations involve one spouse obtaining a notable advantage at the expense of the economic interests of the other, there is a presumption that the transmutation resulted from undue influence. In such a case, the transmutation will be invalidated by a divorce judge.

Unintentional Transmutation

Most transmutations are inadvertent because parties never intended to relinquish an interest in the property they owned individually. In many common situations, that is what occurs.

For example, a wife bought a home before the marriage and took out a mortgage. The couple decides it makes sense to refinance that mortgage. The husband’s signature is needed on the loan documents to qualify for the new loan. Since the lender wants both of the spouses to be on the hook for the mortgage, at the close of the refinance, the title officer insists that among the many documents that have to be signed, the wife must sign an interspousal transfer deed, a quitclaim, or a grant deed, transferring the home from the wife alone to husband and wife, as joint tenants or as community property.

Another example: in estate planning, the couple wants to ensure the husband inherits the wife’s assets with minimum legal trouble or expense. So, they add the husband’s name to the house’s title. The wife may have no intention whatsoever to give up an interest in her separate property during the marriage (i.e., before death), yet transmutation has occurred, and if they divorce, he will have a legal interest in the property, and she will have to share it with him.

What Are the Pros and Cons of Transmutation?

Some of the advantages of transmutation include:

Some of the disadvantages of transmutation include:

Knowing what will and won’t qualify as a transmutation is hard. If you want to avoid the transmutation of property, there are ways you can protect your assets; for example, through a pre or post-nuptial agreement.

Do I Need a Transmutation Agreement?

It may not be enough to simply deed property or change the title documents on the property or other assets. Doing so may not change ownership rights between married persons. The courts maintain specific rules that must be followed to change how the title is held after a transaction between spouses.

Transmutation takes a certain amount of foresight to avoid unwanted consequences. As such, a couple should not engage in acts that might lead to transmutation if that is not what they intended – that is, they should think through who gets ownership of what and make sure they don’t take any steps that would alter that.

Also, they should not create a transmutation agreement without first consulting with an attorney. There are too many ways that a non-professional can go wrong.

Do I Need a Lawyer for Issues Involving Transmutation?

A written transmutation agreement would provide a court with the “clear and convincing evidence” needed to prove how the couple really wanted the property to be treated. This document would be critically important if, at the time of divorce, a difference of opinion arises between the parties regarding whether particular assets are held jointly or individually.

A skilled and knowledgeable attorney can draft such a document, taking care to be precise and understandable. It is important to use a local lawyer since the rules can vary between jurisdictions. An experienced prenup lawyer can also represent you in court if needed.

Save Time and Money - Speak With a Lawyer Right Away