Transmutation of Community Property

n a community property state, like California, a claim against either spouse will reach all of the community property assets (not just half).  One way to avoid that is to terminate community property with a written agreement (known as the transmutation agreement).  Some assets are allocated to the wife as her separate property and some to the husband as his separate property.  This way a lawsuit against one spouse reaches only that spouse’s separate property.

This was famously done by the McCourts when they purchased the LA Dodgers.  Frank McCourt had to personally guarantee the obligations of the Dodgers. The McCourts signed a transmutation agreement making the Dodgers Frank’s separate property and the parking lots Jamie’s separate property.  This would make the parking lots inaccessible to Frank’s lender if the Dodgers default on the loans.

The split of the assets in the transmutation should be equal, based on fair market value.  While we can split each asset down the middle, it is more effective to pick and choose which spouse gets which asset.