Pros and Cons of Transmutation Agreements
What is Transmutation?
How is Transmutation of Property Accomplished?
- By deeds or acts done by the couple or an individual spouse which result in the character of the property being changed. An example of this is when an item of separate property becomes so commingled with community property that it is no longer recognizable as separate property; it is then said to be transmuted from separate to community property.
- Through a particular type of marital agreement known as a “Transmutation Agreement”. This is a written document describing an item of property and stating that it is to be transmuted. The document must be signed by both spouses and should include a date when the transmutation becomes effective.
What are the Pros and Cons of Transmutation?
- Clearer identification of property: Transmutation can help make it more clear which properties are separate and which are shared. Transmutation prior to separation or filing for divorce can make the divorce hearings run more smoothly. This is important in cases where one spouse is much more wealthy than the other
- Evidence: Transmutation agreements can be used as legal evidence in the case of a property dispute. For example, a common dispute is whether an item of property was given to a spouse as a gift or not. If the property is addressed in a transmutation agreement, it can help prove who the rightful owner is
- Tax consequences: Transmutation can help provide certain tax advantages, especially those associated with inheritance and death taxes. Transmutation agreements can often help avoid double taxation when the property is distributed to heirs
- Limited availability: Every state has different requirements for transmutation. Also, transmutation is cannot be done solely for the purpose of estate planning- transmutation agreements can only be used in connection with divorce
- Potential for error: A common error occurs where one spouse takes a property title in their own name, such as the deed for a house. Though the couple intended it to be a joint ownership, it could possibly be subject to transmutation principles in the future. In turn this could effect the division of property if the couple did not have a written agreement describing their full intentions
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Last Modified: 01-07-2011 05:03 PM PST
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