In a recent California Court of Appeal case, Marriage of Holtemann, the court held that a husband’s transmutation of his separate property to community property in connection with his estate planning was binding on him at the time of divorce. It is very common for married couples doing estate planning to execute property agreements in which they transmute or change some or all of their separate property to community property. They do this in order to take advantage of the full step-up in basis allowed for community property on the death of either spouse. Separate property gets a step-up only on the death of the spouse who owns it.
In the Holtemann case, the couple had executed such an agreement, but on their divorce the husband tried to claim that the transmutation was only meant to apply on his death and was not meant to be honored in the event of divorce and therefore the property in question should be his separate property. Needless to say, the court was not inclined to let the husband have his cake and eat it too.
Kirsten Howe practices estate planning law in Walnut Creek. Send your estate planning questions to Kirsten by e-mail.