Relief for a Surviving Spouse – Spousal Property Petition
California is a community property state, so the presumption is that assets acquired by either spouse during the course of the marriage belongs to the community (even if the assets are titled in the name of one spouse alone).
In California, the ideal way of holding title to real property for a married couple is in a revocable living trust. For married couples without a trust, the second-best way to hold title is “community property with right of survivorship” and the third best way is “husband and wife, as community property.” All three variations ensure that property is easily transferred to the surviving spouse and all capital gains on the residence is eliminated if the property were to be sold (Obama referred to this as the “angel of death loophole”). It is important that the property is characterized as community property so that both spouses can obtain a “step up” in income tax basis, thereby eliminating capital gains on the future sale of the home.
Issues can arise when property that is considered community property by each spouse is titled in the name of one spouse alone, or is titled “joint tenants with right of survivorship.” With one spouse on title, the problem is twofold: 1) transferring the property to the surviving spouse, and 2) obtaining what’s called a “step up in basis” so that all built in capital gains on the property is eliminated. With both spouses on title as “joint tenants with right of survivorship” the problem will be tax-related, as there will potentially be a loss in a “step up in basis” for half of the property.
If property such as a principal residence is held in one spouse’s name alone, and no estate planning has been done, the surviving spouse is going to have to go to probate court to transfer the residence. Or, if the property is titled “joint tenants with right of survivorship” the surviving spouse will seriously want to consider going to court to confirm the property as community property to eliminate all capital gains on the property.
Avoiding Probate in California
California has carved out an exception to the general rule that all property valued over a certain threshold ($166,250) has to go through probate. The carve out is only available to a surviving spouse or registered domestic partner. Depending on how title is held, how the property is characterized (separate property vs. community property), and who the surviving heirs are, our firm will be able to prepare and file a Spousal Property Petition to have the property confirmed as community property, and have it transferred to the surviving spouse with the elimination of capital gains. Utilizing a Spousal Property Petition is considerably faster and less expensive than a full probate proceeding.
Building a winning case:
The strength or weakness of a Spousal Property Petition depends on a number of factors. To build a winning case, the attorney will look at the following:
- Existence of a Community Property Agreement. If the real property is the name of one spouse alone, but there is a community property agreement that stipulates that all property owned by spouses is community property, then a very strong argument can be made that the property is community property, which should pass via the spousal property petition.
- Date the Property Was Acquired. The court will look to see whether the property was acquired before the marriage or during the course of the marriage. Property acquired during the course of the marriage will support the idea that the property is community property that should pass by way of the spousal property petition.
- How the Property Was Acquired. The court will look to see where the source of funds for the acquisition of the property came from. If there was a gift or inheritance that allowed the spouse to purchase the property, then an argument can be made that is separate property instead of community property. However, even when the property is clearly separate property (either because it was acquired before marriage, or was acquired with separate property funds), an argument can be made that the property is community property if there was an understanding between the spouses that the property was in fact their community property and close family members can confirm in writing that this was their understanding as well.
- Family Dynamics. Family dynamics play an important role anytime court action is involved. If a spouse is making the argument that an asset is community property, but a child disagrees and believes it is separate property, issues may arise in court. On the flip side, if the closest living heirs consent in writing that a given asset is community property, the court process will go smoothly, and can possibly be expedited as will be explained below.
- Underlying Reason why Property is in One Spouse’s Name. Quite frequently, for real property, one spouse will be on title to the loan and on the deed to the property for financing reasons. However, both spouses consider the property community property, and only put one spouse on title because the lender required it. In this situation, an argument can be made that both spouses always considered the property to be community property, despite the fact that only one spouse is on title.
Getting a Court Order Quickly:
Spousal Property Petitions can be a useful tool in so far as they help you avoid probate, and are much quicker and cheaper than a full-length probate. However, probate courts in California are backed up, and with Covid, the length times have increased from what was 2-3 months in the past to 4-5 months currently. However, our firm has developed a way of going to court on an emergency basis to get Spousal Property Petitions approved in a matter of weeks! And, this procedure can be applied no matter what California county your loved one died in, and no matter what asset needs to be transferred into the trust.
The emergency procedure is not always possible and it depends on the set of facts, so contact us today to see if we can get your Spousal Property Petition approved quickly.
From Start to Finish:
When you hire Klosek Law Offices to transfer an asset that should have belonged to both spouses as community property from the start (i.e., a piece of real property) we will take care of getting the asset confirmed as community property and transferred to the surviving spouse.
What that means is that we will get a court order, certify it, and then properly record it, so that title is properly updated on the title report.
All these steps are needed so the surviving spouse is in a position where he or she has the authority to sell, refinance, and do as he or she pleases with the real property.
We are the probate attorneys you can trust, contact us today!