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Transmutation Agreements

Protecting Your Property in a High Asset Divorce

Marriage is the joining of two people into a single household unit. Legally, the marriage contract involves giving your new spouse a lot of trust. You’re offering them at least partial ownership of your assets, and you agree to take on some responsibility for their assets and debts, as well.

Not everyone feels comfortable making this kind of commitment. It’s entirely possible to love someone dearly and not feel comfortable with this type of arrangement. It’s also possible to marry someone and then later realize that you need a little more financial separation from your spouse. In both cases, a transmutation agreement can offer some valuable benefits for your marriage and your finances alike.

At Kaspar & Lugay, we specialize in managing this type of financial and marital contract. We are deeply familiar with the stresses that arise when couples are trying to manage their assets and their marriage at the same time. Whether you’re concerned about a business, a home, RSUs, or any other large asset, we can help you determine the best course of action and put together a transmuatation agreement that will work for you.

What is a Transmutation Agreement?

To understand what a transmutation agreement does, it’s important to grasp the legal situation that created these agreements. California is a community property state. Unlike most states in the US, this means that both spouses in a marriage have complete, 50/50 ownership over assets created or acquired after the wedding, regardless of which person bought or earned them.

While this gives lower-income partners some protections in case of a divorce, the community property legislation can also feel unfair to entrepreneurs and performers. If one spouse has a particular asset or set of assets that they would like to retain full control over, a transmutation agreement can help. The goal of transmutation agreements is to “transmute” assets from community property to separate property, or vice versa.

Transmutation agreements can be used to accomplish three things:

  • The transfer of community property to the separate property of either spouse;
  • The transfer of separate property of either spouse to community property; or
  • The transfer of separate property from one spouse to the separate property of the other spouse.

Each of these potential transfers can be beneficial in the right circumstances.

What Makes a Transmutation Agreement Binding?

There is a specific law in California regarding the requirements for binding transmutation agreements. According to Section 852 of the California Family Code, transmutation agreements must meet four standards:

  • Both parties must have access to independent legal counsel during the writing of the agreement;
  • The agreement must be a written contract, not verbal;
  • It must include specific language declaring the intention to transfer property ownership between the parties; and
  • It must specifically be signed by the partner who is releasing or reducing their ownership of the property.

If these four elements are in place, then transmutation agreements are binding and supersede previous agreements. We have the experience to write a legally binding transmutation that will satisfy both you and your spouse. Our expert attorneys can help you use a binding transmutation agreement to change the terms of prior contracts, such as prenuptial agreements. If your financial situation has changed since you were first married, we can help you adjust the contract involved as well.  

Using Transmutation Agreements to Stabilize Your Marriage

Our attorneys have years of experience with the financial side of marriage, and we understand the stress that finances can place on a union. Whether you’re an entrepreneur, a startup employee, or a performer, we can help you develop a transmutation agreement that can help you stabilize your marriage and protect your assets.

For example, if one partner starts a business after getting married and the other partner has no input into it, it is still considered community property. If the entrepreneurial partner wants to keep full ownership of the business in the case of a divorce, they can request a transmutation agreement. This agreement would convert the company from community property to separate property, making it wholly the responsibility of the business founder. We can help you protect your business this way.

On the other hand, transmutation agreements can also make the previously separate property into community property. A business that one partner started before marriage can be converted into communal property if their new spouse takes on business responsibilities. This can confer tax benefits if either partner dies.  

How Can Transmutation Agreements Be Set Aside?

Not every transmutation agreement needs to be a permanent solution. It’s also possible in some cases to set aside a transmutation agreement. There are two main circumstances in which a transmutation agreement will not be considered binding.

First, if both spouses agree to set aside a given transmutation agreement, then it is no longer binding. The spouses can either revert the deal entirely or create a new transmutation agreement about the relevant assets. This ability to set aside the contract can be useful if assets or responsibilities change significantly.

Second, a transmutation agreement cannot be coerced or acquired through deceit. A court or a divorcing spouse can fight the validity of a transmutation order if a spouse “obtains an unfair advantage” economically over the other because of the agreement. The transmutation agreement may also be invalid if the partner giving up ownership was forced, coerced, or lied to in the signing of the contract. If you believe that a prior transmutation agreement in your marriage is unfair in this manner, we can help you fight it in court.

Transmutation Agreements and Legal Representation

The most crucial aspect of any transmutation agreement is that both partners have independent and competent legal representation. Getting appropriate representation for both parties has two benefits:

  • Both parties will have access to clear explanations of how the transmutation will affect them, and
  • The transmutation agreement is more likely to hold up in court.

Transmutation agreements can be significant in marriages with a considerable amount of assets. They can protect assets against divorce, they can minimize stress on the marriage, and they can even confer tax benefits. It’s worth the time to work with a qualified attorney with experience in property division to ensure that your transmutation agreement is valid and enforceable.