In re Brace

Clifford and Ahn Brace (defendants) were married is 1972. In 1977 or 1978, the Braces acquired a home, and at some point thereafter and before 2011, they acquired a rental property. The Braces acquired the properties using community (i.e., marital) assets and held both properties as joint tenants. In 2011, Clifford filed for Chapter 7 bankruptcy, by which a bankruptcy trustee would sell the property in Clifford’s bankruptcy estate, including community property held by Clifford and Ahn, and use the proceeds to pay Clifford’s creditors. The bankruptcy trustee sought a declaration from the bankruptcy court to consider the two properties as community property—by which the bankruptcy trustee could have included 100 percent of the property in the bankruptcy estate—rather than separate property—by which the trustee could have only included Clifford’s 50-percent share of the property in the bankruptcy estate. The bankruptcy court held that, because the properties had been acquired during the marriage and with community assets, the properties were presumed to be community property and were therefore part of Clifford’s bankruptcy estate. The Ninth Circuit Bankruptcy Appellate Panel affirmed, and the Braces appealed to the Ninth Circuit. The California Supreme Court accepted a certified question from the Ninth Circuit to determine whether, under California law, the Braces’ properties were presumed to be community property and, if so, whether the properties could be transmuted to separate property.