Inadvertent Transmutation - How What was ‘Mine’ became ‘Ours’

Inadvertent Transmutation - How What was ‘Mine’ became ‘Ours’

Mitchell Reichman

Mitchell Reichman

November 27, 2018 11:26 AM

We frequently represent clients who have engaged in some type of transaction with his or her spouse during the marriage that inadvertently causes them to lose certain rights to property unknowingly. This often happens in the context of acquiring or refinancing a home.

Is It a Loan or a Gift?

When a home is acquired, sometimes one of the parties’ parents will contribute money towards the down payment. As part of the mortgage lender’s underwriting requirements, the parents are typically required to sign a “gift letter” representing to the lender that the money they are contributing to the down payment is in fact a gift to the couple and not a loan that needs to be repaid. Often, however, the understanding between the parties and the parents making the “gift” is that it is really a loan that needs to be paid back. The dispute between the parties about whether they have a debt or received a gift comes to light in their divorce when determining how the home equity is going to be allocated between them. The child of the parents who made the gift will contend it was not really a gift but a loan and their parents need to be paid back. That debt should be recognized as a community debt in the divorce. The other spouse will contend it was a gift that does not need to be paid back and rely on the gift letter. If there is no documentation other than the gift letter it is almost 100% certain that a judge is going to find that this was a gift and not a loan. If a real loan is intended, then the parents making the loan and/or the child who wants his or her parents to be paid back needs to be sure to properly document the transaction as a loan with a signed promissory note or other documents that establish the parties’ real intentions concerning the transaction. Payments made on the debt during the marriage can also be critical.

Refinancing Transfers

When a home is refinanced, inadvertently sole property rights may be lost. It is not uncommon for one of the parties to own a home at the time of marriage which is titled just in their name. The newly married couple move into that home and establish it as their marital residence. If they seek to refinance the home, the lender will typically require that title be transferred to both parties and both parties sign loan documents obligating both on the loan. If title remains held jointly at the time the parties file for divorce, that home is going to be deemed community property. This is regardless of whether there may have been substantial equity in the property before the marriage or that the person did not intend to make a gift of that equity to the other person.

If one of the parties has bad credit during a refinance a mortgage broker may suggest that title be transferred to only one of the parties and then that one party qualifies for the loan. A quit claim deed may be executed, although it is also possible for a disclaimer deed to be executed. A person signing a disclaimer deed does not realize they may be walking away from their share of the equity in the home. We see transactions where this happens and the person whose rights have been lost says that there were discussions about transferring title back to both parties jointly after the loan closed, but often that follow through does not occur.

Estate Plan Transfers

Inadvertent transmutation of separate property to community property may happen when the married couple forms or modifies their estate plan. Trust agreements typically have provisions that address the characterization of property transferred to the trust as separate property or community property, and whether property transferred to the trust will maintain its character or not. While it is possible to challenge the transmutation of property from separate to community by virtue of signing a trust agreement, people would be far better served to recognize that their property rights could be affected by the terms of the estate plan and each party should have separate counsel when anyone’s separate property is going to be included as part of an estate plan.


The last situation where inadvertent transmutation frequently occurs is when there is “co-mingling”. Co-mingling describes a situation where separate property assets and community assets are put together. The typical situation is with a bank or brokerage account, owned prior to marriage or funded with assets inherited during the marriage. Following or during the marriage, transactions may occur in which community funds are introduced into that account. Arizona has a very strict law about direct tracing in order to maintain the separate property character of such an account. This law produces results that are contrary to what people might intuitively think. For example, if someone had $1 million in assets in his or her personal brokerage account before marriage and then during the marriage $100,000 of marital assets were contributed to it, it is reasonable to assume that because most of the money in the account was separate property that those separate funds would remain separate property if the parties were to divorce. However, that is not the case as in many cases numerous transactions happen between the time the community money was introduced into the account and when a divorce is filed. Years later it becomes impossible to directly trace the separate assets. It is important to keep accounts separate and open new accounts that will hold community assets. Notably the co-mingling issue does not apply to retirement accounts.


The bottom line is that everyone should be sensitive to the impact on their property rights when acquiring or refinancing a home, when they are involved in creating an estate plan and how they maintain accounts or assets that were acquired prior to marriage or given to them during the marriage.


Related Articles


Coffey Burlington: A Legacy of Legal Excellence

by John Fields

In complex practice areas, such as business litigation and white-collar defense, Miami-based firm Coffey Burlington continues to set a standard of excellence.

Group of lawyers pose for law firm picture

"Lawyer of the Year"

Lawyer in suit poses for a headshot photo

Jeffrey A. Weissman

Family Law

Fort Lauderdale, FL


"Lawyer of the Year"

Image of NorCal Lawyer of the Year honoree

Michèle M. Bissada

Family Law

San Jose, CA


A Balancing Act

by Joseph Milizio

New York State recently passed a landmark law that expands LGBTQ couples’ ability to start a family while protecting surrogates’ rights.

Surrogacy Rights for LGBTQ Couples

Fostering Acceptance

by Cassandra Biron

Those looking to be a foster or adoptive parent for LGBTQ youth must understand which kinds of support are most beneficial to parent and child alike. Happily, resources are now more widely available than ever.  

Resources for Fostering LGBTQ Youth

Is Family Law Mediation the Future of Conflict Resolution?

by Best Lawyers

In recent years, family law mediation has started to emerge as the preferred option over traditional forms of litigation, offering clients an amicable and efficient alternative of conflict resolution.

Silhouettes of family split into multiple sections


Protecting Your Personal Injury Settlement: The Importance of Consulting With a Family Lawyer

by Forum Law and Yegendorf Rashid Injury Lawyers

Victims of personal injury in Ontario may not realize that their case settlements and financial winnings could be at risk in the event of a divorce. A family law lawyer can help.

Teddy bear with bandages laying down with orange background

The Top 7 Things to Know Before Filing for Divorce

by Best Lawyers

Consulting with a qualified divorce attorney can help you understand your rights and obligations when filing for divorce. Here are 7 things you should know.

Two golden wedding bands with a crack down the middle

It’s All Relative

by Paula Birch Billingsley

Relative adoption can be infant adoption too; it happened to us and was quick, easy and inexpensive.

Private Adoption of A Relative’s Child

Announcing the 2022 Best Lawyers: Family Law Publication

by Best Lawyers

Featuring the top legal talent in Family Law and Trusts & Estates.

Announcing Best Lawyers Family Law 2022

Crossing the Line

by Joseph Trotti

Divorce can be difficult, complicated and emotionally exhausting. Divorcing across state lines ups the jurisdictional complexity significantly.

Jurisdiction and Divorce Across State Lines

Trouble at Home

by Brittney M. Miller and James J. Vedder

Decisions about custody and parenting time after a separation or divorce are never simple. Family violence of any kind makes the process all the more complex—and the victim isn’t always the beneficiary.

How Domestic Violence Complicates Custody

Inoculation Disputation

by Justin Smulison

Vaccine uptake has become one of the most contentious issues in American life. Divorced parents who disagree about it are creating a welter of new custody cases in family court—and precedent is scarce.

Divorced Parents Disagree on Child Vaccine

The 2021 Best Lawyers in Family Law

by Best Lawyers

Featuring the top lawyers practicing in Family Law and Trusts & Estates.

The 2021 Best Lawyers in Family Law

Jeanne T. Tate - Tampa 2021 Lawyer of the Year

by Best Lawyers

Family Law Tampa, Florida

Jeanne T. Tate

WATCH: Best Lawyers Discusses COVID-19 & Family Law

by Best Lawyers

Three legal experts join the CEO of Best Lawyers to talk about problems that arise for family law during COVID-19.

COVID-19 Panel: Family Law

Trending Articles

The 2024 Best Lawyers in Spain™

by Best Lawyers

Best Lawyers is honored to announce the 16th edition of The Best Lawyers in Spain™ and the third edition of Best Lawyers: Ones to Watch in Spain™ for 2024.

Tall buildings and rushing traffic against clouds and sun in sky

Best Lawyers Expands Chilean 2024 Awards

by Best Lawyers

Best Lawyers is pleased to announce the 14th edition of The Best Lawyers in Chile™ and the inaugural edition of Best Lawyers: Ones to Watch in Chile™, honoring the top lawyers and firms conferred on by their Chilean peers.

Landscape of city in Chile

The Best Lawyers in Spain™ 2023

by Best Lawyers

Announcing Spain's recognized lawyers for 2023.

Flag of Spain

Announcing The Best Lawyers in South Africa™ 2024

by Best Lawyers

Best Lawyers is excited to announce the landmark 15th edition of The Best Lawyers in South Africa™ for 2024, including the exclusive "Law Firm of the Year" awards.

Sky view of South Africa town and waterways

Announcing the 2023 The Best Lawyers in America Honorees

by Best Lawyers

Only the top 5.3% of all practicing lawyers in the U.S. were selected by their peers for inclusion in the 29th edition of The Best Lawyers in America®.

Gold strings and dots connecting to form US map

The Best Lawyers in Portugal™ 2024

by Best Lawyers

The 2024 awards for Portugal include the 14th edition of The Best Lawyers in Portugal™ and 2nd edition of Best Lawyers: Ones to Watch in Portugal™.

City and beach with green water and blue sky

The Best Lawyers in Peru™ 2024

by Best Lawyers

Best Lawyers is excited to announce the landmark 10th edition of The Best Lawyers in Peru, the prestigious award recognizing the country's lop legal talent.

Landscape of Peru city with cliffside and ocean

The Best Lawyers in South Africa™ 2023

by Best Lawyers

Best Lawyers proudly announces lawyers recognized in South Africa for 2023.

South African flag

The Best Lawyers in Chile™ 2023

by Best Lawyers

The results include an elite field of top lawyers and firms in Chile.

White star in blue box beside white box with red box on bottom

The Best Lawyers in Colombia™ 2024

by Best Lawyers

Best Lawyers is honored to announce the 14th edition of The Best Lawyers in Colombia™ for 2024, which honors Colombia's most esteemed lawyers and law firms.

Cityscape of Colombia with blue cloudy sky above

Announcing the 2024 Best Lawyers in Puerto Rico™

by Best Lawyers

Best Lawyers is proud to announce the 11th edition of The Best Lawyers in Puerto Rico™, honoring the top lawyers and firms across the country for 2024.

View of Puerto Rico city from the ocean

The 2023 Best Lawyers in Portugal™

by Best Lawyers

Announcing the elite group of lawyers recognized in Portugal for 2023.

Green and red Portuguese flag

Unwrapping Shrinkflation

by Justin Smulison

Through the lens of the United States, we take a closer look at the global implication of companies downsizing products while maintaining and often raising prices.

Chocolate bar being unwrapped from foil

Best Lawyers: Ones to Watch in America for 2023

by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in America™ highlights the legal talent of lawyers who have been in practice less than 10 years.

Three arrows made of lines and dots on blue background

2021 Best Lawyers: The Global Issue

by Best Lawyers

The 2021 Global Issue features top legal talent from the most recent editions of Best Lawyers and Best Lawyers: Ones to Watch worldwide.

2021 Best Lawyers: The Global Issue

Announcing the 2023 The Best Lawyers in Canada Honorees

by Best Lawyers

The Best Lawyers in Canada™ is entering its 17th edition for 2023. We highlight the elite lawyers awarded this year.

Red map of Canada with white lines and dots