The 2014 decision by the California Supreme Court in In re Marriage of Valli,
58 Cal.4th 1396 (Valli) changed how assessors must decide which spouse/partner owns
real property or a legal entity as to interests acquired during marriage (or a domestic
partnership). The BOE has issued Letter No. 2018/014, which provides that the BOE
will look to the nature of the ownership in real property rather than how the property is
titled. This letter is important to understand in order to avoid an unexpected property tax
reassessment where spouses transfer property into or out of a legal entity.
Background
For property tax purposes, Property Tax Rule 631 provides owners an exclusion from
reassessment for any transfers of property between spouses (“direct transfers”) and
any transfers between spouses of interests in legal entities, i.e., partnerships, LLCs and
corporations, that hold real estate (“indirect transfers”).
While the foregoing exclusion seems liberal, unfortunately the interspousal exclusion does not
apply to transfers between individuals and legal entities. Accordingly, whether property acquired
during marriage was separate or community property may trigger reassessment traps for unwary
spouses where the percentage ownership in the legal entity is not the same as held by the spouses.
This meant that for transfers between entities and spouses, spouses were encouraged to do “double
deeding” or legal entity corrections to clean up title so that the proportionate transfer applied.
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