An interesting situation develops when during a marriage the spouses take the title of their real property and, for whatever reason, transfer it into the name of the other spouse during the marriage. Does this mean that the transferring spouse gave up their right to the house? Does the receiving spouse now have full title to the property?
This is an often encountered question these days, especially in light of all the families taking advantage of the refinance boom. Often times, during a refinance of a marital home, a spouse may not have the glowing credit rating of the other spouse. Thus, often times to obtain a better interest rate on the refinance, the lower rated spouse will Quit Claim or otherwise transfer title to the better rated spouse, with a promise that title will be changed back after the refinance goes through. Then, of course, as you can well imagine, title never gets transferred back to the disadvantaged spouse. Then at the time of divorce, the advantaged spouse (who remains on title) pulls out the transfer deed and informs the disadvantaged spouse (who is no longer on title) that they do not have any right to the house, all their rights were transferred to them when the refinance took place. Is this true? What happens?
This situation occurred in a case called Marriage of Barenson. This case stands for the position that while spouses are free to transfer property to their spouse, whether they meant to actually release all their interest in the property they owned, is another story. The courts will presume that such a transfer, even if it meets certain requirements, was the result of undue influence by the advantaged spouse used against the disadvantaged spouse, which will generally result in invalidating the transfer to the advantaged spouse.
Why the presumption? The public policy of the state of California is to protect and promote the vital institution of marriage. Thus, when spouses deal with each other the courts will uphold the fiduciary duty owed to the other spouse (this duty is created upon marriage and requires spouses to deal fairly and in good faith) thereby protecting a disadvantaged spouse.