In re Clifford Allen Brace Jr.

Case Type:
Consumer
Case Status:
Affirmed in part and Reversed in part
Citation:
17-60032 (9th Cir.) (9th Circuit, Nov 09,2020) Published
Tag(s):
Ruling:
The Ninth Circuit affirmed the bankruptcy court's finding that one real property held by the debtor and his non-debtor spouse was community property based on the California community property presumption. The court vacated the bankruptcy court's decision that the community property presumption applied to the other property and remanded to the bankruptcy court to make a finding of when the property was acquired.
Procedural context:
Chapter 7 trustee brought an adversary proceeding related to the determination of the bankruptcy estate's interest in two pieces of real property. The bankruptcy court found that both properties were community property and the Bankruptcy Appellate Panel affirmed. The debtors appealed to the Ninth Circuit, which first certified questions of California law to the Supreme Court of California and then entered the decision affirming in part and vacating and remanding in part.
Facts:
Debtor and his non-debtor spouse had acquired two pieces of real property--the Redlands Property and the San Bernardino Property-- after they married in 1972. The Redlands Property was acquired in 1977 or 1978 but the bankruptcy court did not make a finding as to when the San Bernardino Property was acquired other than that it was sometime after the marriage or as recently as 2011 prior to the bankruptcy filing. The bankruptcy court held that the community property presumption under California applied to both properties, which brought the properties within the bankruptcy estate in their entirety and allowed the trustee to sell both with all proceeds available to distribute to the debtor's creditors. If instead the presumption of joint tenancy had been applied to the properties, the trustee would be entitled to sell the properties but would be required to apportion the proceeds between the estate and the non-debtor spouse for her ownership interest. The Ninth Circuit certified a question to the California Supreme Court to resolve a conflict between the presumptions relating to community property under California law. The question was whether, in Chapter 7 bankruptcy proceedings, California Evidence Code section 662, which affords a presumption based on the property’s form of title, supersedes California Family Code section 760, which applies a presumption in favor of community property for property purchased during the marriage with community property. The California Supreme Court answered that the answer depends on the date the property was acquired. For joint tenancy property acquired during marriage before 1975, each spouse’s interest is presumptively separate in character. Conversely, for joint tenancy property acquired with community funds on or after January 1, 1975, the property is presumptively community in character. Based on the California Supreme Court's answer, the Ninth Circuit affirmed the bankruptcy court's finding that the Redlands Property was community property based on the community property presumption, since the property was acquired after 1975. The Ninth Circuit vacated the bankruptcy court's decision that the community property presumption also applied to the San Bernardino Property, because the bankruptcy court did not make a determination as to whether that property was acquired before or after 1975. Therefore, the Ninth Circuit remanded to the bankruptcy court to make a finding as to when the San Bernardino Property was acquired and apply the proper presumption. The California Supreme Court also noted in its answer that, for properties acquired prior to 1985, the characterization of property could be transmuted by oral or written agreement or a common understanding. For properties acquired after 1985, a valid transmutation from community property to separate property requires a written declaration that expressly states that the character or ownership of the property is being changed. The Ninth Circuit held that there was no clear error in the the bankruptcy court's finding that the debtors failed to prove that there was an oral transmutation in the 1970s. Because the debtors did not satisfy even the pre-1985 relaxed requirements for transmutation, there was no need for the bankruptcy court to revisit the transmutation issue on remand.
Judge(s):
Callahan, Nguyen, Ezra

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