A Diamond May Be Forever, But What Happens to it When There is a Divorce?

by McManis Faulkner

On October 21, 2013 news spread around the Bay Area when Kanye West rented out AT&T Park and proposed to girlfriend, Kim Kardashian, with a 15-carat sparkler.  The ring was a flawless emerald cut diamond designed by Lorraine Schwartz, with an estimated value of $1,000,000 to $1,500,000. 

Diamonds have long been hailed as a girl’s best friend.  The diamond engagement ring is a symbol of so many things: eternal love, strength, status.  In modern culture, one gets down on bended knee and offers an engagement ring in return for another’s promise to marry.  In sum, an engagement ring is a gift from one future spouse to another for all to admire.  It is a symbol of a promise – to have and to hold one another, happily ever after.  All too often, however, that promise is broken and one party files for dissolution of marriage.  So, what happens to all of the gifts that were given during happier times?

Under Family Code section 770(a), property owned before marriage is considered separate property.  Similarly, property acquired during marriage, by gift, is the acquiring spouse’s separate property.  In this case, if things do not work out between West and Kardashian, it seems certain that the 15-carat engagement ring would still belong to Kardashian, as her separate property, since it was given to her prior to marriage.

But how do you characterize assets that are purchased with community funds and given as a gift between spouses during the marriage?  This issue comes up often in a dissolution matter when the spouses are dividing up the assets acquired during the marriage.  

Parties may transmute (change the character) of property from community to separate.  Family Code section 852(c) states that a transmutation of real or personal property is not valid unless it is made in writing by an express declaration.  So if you intend for a gift to be the separate property of the recipient, does this mean that you have to specifically write in a card, “Dear Wife, my love is eternal and with this gift I clearly intend to give you this 15-carat diamond ring as your sole and separate property.  With love and affection, Husband.”  The answer: it depends.

The writing requirement does not apply to gifts of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made, so long as the gift is not substantial in value when taking the circumstances of the marriage in consideration.

The courts have taken a very strict application of this rule.  In the Marriage of Buie and Neighbors (2009) 179 Cal.App.4th 1170, Husband tried to argue that a car purchased with $60,000 of his Wife’s separate property funds was a gift to him.  The trial court found that the car was not of “substantial value” in relation to the parties’ circumstances during marriage and concluded that it was transmuted to Husband as his sole and separate property.  On appeal, however, the Fourth District decided that although the car may have been a gift during the marriage, it did not qualify as a “tangible article of personal nature” under a strict interpretation under the statute.  As a result, the car was treated as a community property asset (meaning that Wife was entitled to be reimbursed for using her money to buy the car).  

In re Marriage of Steinberger (2001) 91 Cal.App.4th 1449 also dealt with the issue of gifts made during marriage.  The Sixth District in that case found that a diamond ring given during marriage was not Wife’s separate property absent a written transmutation.  In Steinberger, a husband bought a diamond with community funds, and gave it to his Wife with a card congratulating her on their anniversary and her recent promotion.  Husband was successful in arguing that because the ring was of sufficiently substantial value (in relation to their financial circumstances during the marriage), that it should be treated as community property when there was no written transmutation.  In that case, where there was no history of Husband giving gifts to Wife of that value and without an express written declaration, the Court treated the “gift” as an investment that the community could both enjoy.

West has a reported net worth of $100 million, while Kardashian’s reported net worth is $40 million.  For 2013, it’s been reported that West earned $20 million, and Kardashian is not far behind with $10 million for the year to date.  As such, the circumstances of the West-Kardashian union suggest that gifts of jewelry valued at $1 million or more would not be considered substantial, so it is unlikely that a written declaration would be necessary to characterize it as her separate property.  However, it never hurts to put it in writing.  On the flip side, if you want to maintain the community nature of a gift that is of a personal nature and of substantial value, the lack of writing works in your favor.

Hopefully, the third time is the charm for Kardashian.  Congratulations to the future Mrs. West.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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