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Full Opinion
In re the MARRIAGE OF Diane L. and Douglas BENSON.
Diane L. Benson, Appellant,
v.
Douglas Benson, Respondent.
Supreme Court of California
*472 Ricks & Associates, Gary R. Ricks and Brigham J. Ricks, Santa Barbara, for Appellant.
Griffith & Thornburgh, John R. Rydell II and John C. Eck, Santa Barbara, for Respondent.
BAXTER, J.
Family Code section 852, subdivision (a)[1] (section 852(a)) provides that a "transmutation," or an interspousal transaction changing the character of community or separate property (id. at § 850), "is not valid unless made in writing by an express *473 declaration" approved by the adversely affected spouse. In Estate of MacDonald (1990) 51 Cal.3d 262, 264, 272 Cal.Rptr. 153, 794 P.2d 911 (MacDonald), this court held that a writing satisfies the "express declaration" requirement only if it states on its face that a change in the character or ownership of the subject property is being made. MacDonald made clear that this construction of section 852(a) precludes the use of "extrinsic evidence" to prove that the writing effected a transmutation. (MacDonald, supra, 51 Cal.3d at p. 264, 272 Cal.Rptr. 153, 794 P.2d 911.) MacDonald explained that the Legislature, in enacting these requirements and abrogating prior case law, sought to increase certainty and honesty in marital property disputes, and to decrease the burden on the courts in resolving such matters.
In this dissolution case, Douglas Benson (Husband) claims he conveyed to Diane Benson (Wife) his community property interest in their home after she orally promised to waive, in writing, her community property interest in Husband's retirement accounts. No such writing was ever made. Despite section 852(a) and MacDonald, supra, 51 Cal.3d 262, 272 Cal.Rptr. 153, 794 P.2d 911, the lower courts ruled that Husband's performance of his part of the bargain, as evidenced by the deed he signed in Wife's favor, served as an adequate substitute for Wife's express written statement changing the retirement accounts into Husband's separate property.
We disagree. Section 852(a) does not operate like the general statute of frauds (Civ.Code, § 1624, subd. (a) (Civil Code section 1624(a))), in which the requirement of a basic writing is subject to an implied exception for "part performance" of the contract's terms. Even assuming Husband's transfer of the deed constituted part performance of Wife's promise to transmute the retirement accounts, section 852(a) requires such agreements to be both written and express, and seeks to prevent transmutations under circumstances like those present here. By insisting upon a special writing expressly changing the character of the disputed property, MacDonald all but decided that section 852(a) is not satisfied where no such writing exists at all. Thus, the lower courts erred in accepting Husband's transmutation claim and in denying Wife a community property interest in his retirement plans. We will reverse the judgment.
FACTS
The parties married in 1983. They subsequently had two children, and accumulated property together. Separation occurred in 2000. In 2001, Wife petitioned for dissolution of the marriage. At trial, the parties litigated various issues, including the division of property. The record contains the following evidence.
During the marriage, Husband worked full-time as a truck driver for a food wholesale company. Through his employer, he participated in a stock ownership plan, and contributed to a 401(k) retirement plan. Wife worked part-time as a nurse at a hospital. She also had a retirement plan through her employer.
At the start of the marriage, Wife's father, Dr. Robert L. Maahs, owned the Santa Barbara house in which the couple lived. Husband and Wife contributed some money each month towards use of the house. However, it appears these payments did not cover the mortgage bill or reflect the fair rental value of the property.
Wife is the beneficiary of an irrevocable trust. Her father is the trustee. During the marriage, and apparently for his own estate planning purposes, Wife's father *474 gave the couple a 100 percent ownership interest in the Santa Barbara house. This transfer occurred incrementally, over several years. At some point during this process, Wife's father asked the couple to convey the house to the trust. They agreed. Hence, in two transfers occurring in late 1996 and early 1997, the couple signed grant deeds giving the trust a 100 percent ownership interest in the house.
The parties disputed the circumstances surrounding the transfer of the house to Wife's trust. Husband offered two different versions of events in the trial court, neither of which matched Wife's account.
Initially, Husband maintained that he acquired a community property interest in the house, and that he did not surrender this interest by deeding the property to Wife's trust. To enforce this claim, Husband successfully moved before trial to join the trustee, Wife's father, as a party to the dissolution proceeding. However, while trial was underway, Husband settled all claims against the trust for an agreed-upon amount. The court promptly dismissed the trustee from the case with prejudice.
Later, Husband testified that an oral agreement between the parties changed the community character of both the house and his retirement accounts, as follows: In 1996, when the couple signed the first deed in favor of Wife's trust, Husband agreed to forgo any community interest in the house and Wife agreed to forgo any community interest in his retirement accounts. Wife said she would sign a writing transforming Husband's retirement accounts into his separate property. However, no writing was ever made. Husband knew that such a document could easily have been prepared and signed at the same time he deeded the house to Wife's trust. He did not press the issue because he trusted Wife, and because they had no plans to divorce at the time. Husband admitted at trial that he failed to mention any oral transmutation agreement or to identify the retirement accounts as separate property during discovery and other pretrial proceedings.
Wife denied making any promise to waive or change her community interest in Husband's retirement accounts. She testified that such conversations were limited to the house, and to her father's request that it be conveyed to the trust. Wife reportedly told Husband that they should repay her father's generosity by returning the house to him as trustee.
Consistent with testimony on both sides, the trial court concluded that Husband relinquished his community interest in the house when he deeded it to Wife's trust. However, the court also agreed with Husband that Wife relinquished her community interest in his retirement accounts. The court reasoned that section 852(a)'s writing requirement is subject to implied exceptions that traditionally have been applied in other statutory contexts. Under this approach, Husband's act of deeding the house to the trust constituted "part performance" of the oral transmutation agreement he described, and permitted its enforcement against Wife. In all other respects, the trial court's judgment resolved property, support, and child custody issues not relevant here.
The Court of Appeal affirmed the judgment. The appellate court adopted and applied the reasoning of the trial court.
In seeking review, Wife claimed the lower courts erred in finding a valid transmutation of Husband's retirement accounts under section 852(a), and in denying her a community property interest in those accounts. We now address Wife's concerns.
*475 DISCUSSION
The characterization of property as community or separate determines its division upon dissolution of the marriage. Each spouse owns a one-half interest in all community property. (§ 751.) In general, community property is divided equally in the aggregate when the marriage ends. (§ 2550; see §§ 2600-2604.) However, separate property is not subject to a similar division, and belongs only to the owner spouse. (§ 752.)
In determining the community or separate nature of property, the statutory scheme starts from the premise that all property acquired during the marriage is community property. (§ 760.) As pertinent here, this general rule, or "presumption" (§ 802), covers both real property (§ 760) and employee retirement plans. (§ 2610; In re Marriage of Lehman (1998) 18 Cal.4th 169, 177, 74 Cal.Rptr.2d 825, 955 P.2d 451; In re Marriage of Brown (1976) 15 Cal.3d 838, 841-842, 126 Cal.Rptr. 633, 544 P.2d 561.) By its own terms, the definition of community property in section 760 applies "[e]xcept as otherwise provided by statute." It therefore exempts property defined as separate under other provisions. (E.g., §§ 770 [property acquired by gift or inheritance], 771 [earnings and accumulations while living separate and apart].)
Individuals may alter their property rights under these statutes. (§ 1500.) One set of rules authorizes and regulates contracts made by prospective spouses that take effect upon their marriage. (§§ 1600-1617.) Critical here is the separate scheme governing transactions between spouses that "transmute" or change the character of property during an ongoing marriage. (§§ 850-853.)
In particular, section 850 allows contracts or other transfers transmuting the separate property of one spouse to either the separate property of the other spouse or the community property of both spouses. Community property also may become separate property under this section. Consideration may, or may not, be exchanged. (Ibid.) However, a companion statute, section 852(a), imposes certain requirements.[2] Section 852(a) states that a transmutation "is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected."
Here, there is no dispute that Husband's retirement accounts (much like the house the couple received from Wife's father) were originally community property. The reason is that any right to receive retirement benefits represented deferred compensation for work Husband performed during the marriage. (See In re Marriage of Lehman, supra, 18 Cal.4th 169, 177, 74 Cal.Rptr.2d 825, 955 P.2d 451; In re Marriage of Brown, supra, 15 Cal.3d 838, 841-842, 126 Cal.Rptr. 633, 544 P.2d *476 561.) However, Husband claims the retirement accounts were transmuted into his separate property under an agreement that, in return, he would deed his community interest in the couple's home to Wife's trust. Husband concedes the transmutation of his retirement accounts was never reduced to writing, as contemplated by section 852(a). But he argues that any requirement of such a writing was obviated by his performance of his side of the bargain.[3]
Wife insists, on the other hand, that Husband's testimony about an unwritten agreement between the spouses could not establish such a transmutation. Section 852(a)'s requirement of an express written transmutation, Wife urges, is absolute, and is not subject to an exception for "part performance."
The language of the statute, both on its face and as judicially construed, supports Wife's view. (See Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 38, 283 Cal.Rptr. 584, 812 P.2d 931 [embracing plain meaning of community property statute].) Section 852(a) states that an agreement to change the character of marital property "is not valid unless" it (1) is "in writing," (2) contains an "express declaration" by which the "transmutation" is made, and (3) is "accepted" in some fashion by the "adversely affected" spouse. This multipronged rule is framed in the negative, as though all intendments weigh against finding compliance in the usual case. In addition, no exception to the requirement of an "express" written declaration appears in the statute. Viewed as a whole, these features suggest the Legislature envisioned a standard from which married couples could not freely depart.
In MacDonald, supra, 51 Cal.3d 262, 272 Cal.Rptr. 153, 794 P.2d 911, this court identified the kind of writing needed to transmute property by means of an "express declaration" under section 852(a).[4] As Wife suggests, MacDonald confirms that lawmakers contemplated no exception to the special writing requirement like the one urged here. (See Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1265, 241 Cal.Rptr. 22, 743 P.2d 1279 [declining to create exception that would effectively nullify statutory rule].)
In MacDonald, Margery and Robert had been married several years when they learned that Margery was terminally ill. They decided to divide their community *477 assets, such as stocks and real property, into separate estates that could be inherited by the children each spouse had from a previous marriage. A short time later, Robert received a large cash disbursement from the community pension plan he acquired during his marriage to Margery. Consistent with the couple's general estate plan, the pension funds were deposited into IRA accounts opened solely in Robert's name at three different financial institutions. The designated beneficiary of each account was a revocable living trust that Robert had established in his children's favor. Both Robert and Margery signed standard form IRA agreements. In doing so, Margery consented to the designation of Robert's trust as the sole beneficiary of those accounts (the consent paragraphs). (MacDonald, supra, 51 Cal.3d 262, 264-265, 272 Cal.Rptr. 153, 794 P.2d 911.)
After Margery died, the executor of her estate petitioned the court to establish a community property interest in the IRA accounts. The trial court found that in signing the IRA agreements, Margery intended to transmute her community share of those funds into Robert's separate property. Concluding that a valid transmutation had occurred, the trial court denied the petition. The Court of Appeal reversed on the ground the consent paragraphs did not satisfy section 852(a). This court granted Robert's petition for review. The court affirmed the judgment. (MacDonald, supra, 51 Cal.3d 262, 265-266, 273, 272 Cal.Rptr. 153, 794 P.2d 911; see id. at p. 273, 272 Cal.Rptr. 153, 794 P.2d 911 (conc. opn. of Mosk, J.); id. at p. 274, 272 Cal.Rptr. 153, 794 P.2d 911 (dis. opn. of Arabian, J.).)
MacDonald held that notwithstanding evidence that Robert and Margery intended to divide their community property into separate estates, any attempt to change the character of the pension funds failed under section 852(a). The court acknowledged that the consent paragraphs in the IRA agreements satisfied two of the three statutory requirements. Specifically, they were "`in writing,'" and were "`accepted'" (i.e., signed) by Margery, the adversely affected spouse. (MacDonald, supra, 51 Cal.3d 262, 267-268, 272 Cal.Rptr. 153, 794 P.2d 911.) However, the documents lacked "`an express declaration'" by which transmutations must be made. (Ibid.) In defining and applying this phrase, MacDonald held that the IRA documents needed language "expressly stating that [Margery] was effecting a change in the character or ownership" of community property. (51 Cal.3d at p. 273, 272 Cal.Rptr. 153, 794 P.2d 911, italics added; see id. at pp. 264, 272, 272 Cal.Rptr. 153, 794 P.2d 911.) Nothing indicated that she knew "the legal effect of her signature might be to alter the character or ownership of her interest in the pension funds." (Id. at pp. 272-273, 272 Cal.Rptr. 153, 794 P.2d 911.)
MacDonald relied heavily upon the legislative history to construe the critical statutory phrase. (51 Cal.3d 262, 268-269, 270 & fn. 6, 272 Cal.Rptr. 153, 794 P.2d 911.) The court summarized this history, as follows.
In 1984, the Legislature adopted section 852 as recommended by the California Law Revision Commission (Commission). The Commission reported that under California law at the time, spouses could easily transmute marital property, including real estate, without adhering to any rules or formalities. (Recommendation Relating to Marital Property Presumptions and Transmutations (Jan.1984) 17 Cal. Law Revision Com. Rep. (1984) pp. 213-214 (Commission Report).) The Commission Report made clear that in such cases, transmutations could be based on oral statements, *478 implications from conduct, or documents not manifesting a clear intent to transmute property. (Id. at p. 213, fn. 20, citing Reppy, Debt Collection from Married Californians: Problems Caused by Transmutations, Single-Spouse Management, and Invalid Marriage (1981) 18 San Diego L.Rev. 143 [describing objectionable transmutation cases].) According to the Commission, the "easy transmutation" rule generated extensive litigation and unseemly tactics in dissolution cases. (Com. Rep., supra, at p. 214.) It encouraged spouses "to transform a passing comment into an `agreement' or even to commit perjury by manufacturing an oral or implied transmutation." (Ibid.)
MacDonald, supra, 51 Cal.3d 262, 268, 272 Cal.Rptr. 153, 794 P.2d 911, continued: The Commission drafted section 852 to achieve two basic goals. First, the statute's new requirements would increase certainty as to whether a transmutation had in fact occurred. (Com. Rep., supra, at pp. 224-225.) Second, section 852 would overrule existing case law insofar as it did not require a transmutation to be both written and express. (Com. Rep., supra, at p. 225.)
Against this backdrop, MacDonald concluded that section 852 blocks efforts to transmute marital property based on evidence oral, behavioral, or documentary that is easily manipulated and unreliable. (MacDonald, supra, 51 Cal.3d 262, 269, 272 Cal.Rptr. 153, 794 P.2d 911.) Thus, according to MacDonald, the Legislature could not have meant to validate any writing offered to prove a change in the character of property. (Ibid.) Though no particular terminology is required (id. at p. 273, 272 Cal.Rptr. 153, 794 P.2d 911), the writing must reflect a transmutation on its face, and must eliminate the need to consider other evidence in divining this intent. (Id. at p. 272, 272 Cal.Rptr. 153, 794 P.2d 911.) MacDonald observed that this construction of the statute achieves the stated aims of reducing litigation and discouraging perjury. (Ibid.)[5]
Finally, MacDonald acknowledged that section 852 might prevent courts from finding a transmutation in cases where some evidence suggests the spouses meant to change the character of their property, but where they failed to follow the statutory requirements. However, MacDonald attributed any incongruous results to the manner in which lawmakers ultimately chose to balance the competing policy concerns. MacDonald declined to second-guess the legislative decision to sacrifice informality in transmutations in favor of protecting community property and promoting judicial economy. (MacDonald, supra, 51 Cal.3d 262, 273, 272 Cal.Rptr. 153, 794 P.2d 911.)
The foregoing principles support Wife's view that no valid transmutation of Husband's retirement accounts could occur absent her express written consent transforming them into Husband's separate property. According to MacDonald, supra, 51 Cal.3d 262, 272 Cal.Rptr. 153, 794 P.2d 911, such a transaction necessitates not only a writing, but a special kind of writing, i.e., one in which the adversely affected spouse expresses a clear understanding that the document changes the character or ownership of specific property. It follows from this special writing requirement that section 852(a) cannot be *479 satisfied where there is no writing about the subject property at all, and where a transmutation would have to be inferred from acts surrounding the contract in dispute.
Subsequent decisions adhere closely to MacDonald, and decline to find a valid transmutation absent express written language to that effect. (Estate of Bibb (2001) 87 Cal.App.4th 461, 469-470, 104 Cal.Rptr.2d 415 [DMV printout changed vehicle registration, not ownership]; In re Marriage of Barneson (1999) 69 Cal.App.4th 583, 589-594, 81 Cal.Rptr.2d 726 [written brokerage instructions changed possession, not ownership, of stock].) Other authorities conclude that under MacDonald, supra, 51 Cal.3d 262, 272 Cal.Rptr. 153, 794 P.2d 911, section 852(a) is not satisfied solely by one spouse's detrimental reliance upon the other's oral promise to transmute property. (In re Marriage of Campbell (1999) 74 Cal.App.4th 1058, 1063-1064, 88 Cal.Rptr.2d 580 (Campbell) [wife acquired no interest in husband's home where she spent her money remodeling property after he promised to share title]; Cal. Community Property with Tax Analysis (Matthew Bender, 2004) Transmutation of Property, § 2.24[2][b], pp. 2-50 to 2-51.) A contrary view would threaten to resurrect the "easy transmutation" rule that the Legislature repudiated when it enacted section 852 twenty years ago. (See Estate of Nelson (1964) 224 Cal.App.2d 138, 143, 36 Cal.Rptr. 352 [transmutation may be "inferred from all the circumstances," including acts and oral statements]; Giacomazzi v. Rowe (1952) 109 Cal.App.2d 498, 503, 240 P.2d 1020 [transmutation may occur where "one party has performed all that he promises to perform and the other accepts all the benefits"].) As a result, the lack of a writing expressly changing the character of Husband's retirement accounts seems fatal to finding a transmutation here.
Husband responds that nothing in the statute's history or MacDonald prevents part performance from excusing the special writing that section 852(a) requires. He emphasizes the Law Revision Commission's 1993 Report on the 1994 Family Code, especially the comment to section 852, which states that "the ordinary rules and formalities applicable to real property transfers apply also to transmutations of real property between the spouses." (1994 Fam.Code, 23 Cal. Law Revision Com. Rep. (Nov.1993) com. on § 852, p. 159, reprinted at 29C West's Ann. Fam.Code (2004 ed.) foll. § 852, p. 458 (Commission Comment).) The Commission Comment also cites the statute of frauds in Civil Code section 1624. (29C West's Ann. Fam.Code, supra, p. 458.) Husband theorizes that this language shows the Legislature wanted section 852(a) to encompass not only the "rules and formalities" imposed by the statute of frauds, but also traditional exceptions to those "rules and formalities," such as the one urged here.
Preliminarily, the general statute of frauds in Civil Code section 1624(a) was enacted in 1872, and has been expanded over the years to cover various kinds of contracts, most involving real property and commercial matters. The statute requires either a written contract or "some note or memorandum" subscribed by the party to be charged. (Ibid.) Since the statute of frauds primarily serves to prove that a contract exists (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 345, 9 Cal.Rptr.3d 97, 83 P.3d 497), the writing need only mention certain "essential" (Franklin v. Hansen (1963) 59 Cal.2d 570, 574, 30 Cal.Rptr. 530, 381 P.2d 386) or "meaningful" terms. (Phillippe v. Shapell Industries, supra, 43 Cal.3d 1247, 1259, 241 Cal.Rptr. 22, 743 P.2d 1279.) Ambiguities can be resolved by extrinsic evidence (Franklin *480 v. Hansen, supra, 59 Cal.2d at p. 574, 30 Cal.Rptr. 530, 381 P.2d 386), which serves as a reliable indicator of the parties' intent in commercial or other arms' length transactions. (See Casa Herrera, Inc. v. Beydoun, supra, 32 Cal.4th at p. 345, 9 Cal.Rptr.3d 97, 83 P.3d 497.)
However, where assertion of the statute of frauds would cause unconscionable injury, part performance allows specific enforcement of a contract that lacks the requisite writing. (Earhart v. William Low Co. (1979) 25 Cal.3d 503, 514, 158 Cal.Rptr. 887, 600 P.2d 1344.) The doctrine most commonly applies in actions involving transfers of real property. (Code Civ. Proc. § 1972, subd. (a) [part performance available to enforce agreement to convey real property absent writing required under § 1971 of same code]; Paul v. Layne & Bowler Corp. (1937) 9 Cal.2d 561, 564, 71 P.2d 817; Sutton v. Warner (1993) 12 Cal.App.4th 415, 422, 15 Cal.Rptr.2d 632; Trout v. Ogilvie (1919) 41 Cal.App. 167, 174, 182 P. 333.) Yet, part performance also has been used to enforce other contracts that violate the statute of frauds in Civil Code section 1624(a). (Maddox v. Rainoldi (1958) 163 Cal.App.2d 384, 390, 329 P.2d 599; see Note, Part Performance, Estoppel, and the California Statute of Frauds (1951) 3 Stan. L.Rev. 281, 285-288.) In any event, to constitute part performance, the relevant acts either must "unequivocally refer[ ]" to the contract (Trout v. Ogilvie, supra, 41 Cal.App. at p. 172, 182 P. 333), or "clearly relate" to its terms. (Sutton v. Additional Information