California Premarital Agreements

Pre-Marital Agreements in California

by Susan L. Jeffries, JD, Ll.M (Tax)

I. History:

Pre-Marital Agreements (PMA) have been enforced in England since the 16th Century when a bride paid dowry to the grooms family and the bride was guaranteed an annuity if she survived the groom plus dower rights to 1/3 of the Grooms lands and tenements.
Until the 12th Century marriage had to be approved by the couples parents. Aristocracy had to get the King’s approval.
The idea of Pre-Marital Agreements developed from the Germanic custom of free contract and the fact that marriage was both an emotional as well as an economic enterprise.

II Candidates for a PMA

Previously married who want to avoid a contested property dispute upon divorce.
Individuals and families with assets they want to protect from transfer to an unrelated spouse upon death or divorce.
Individuals with a separate net worth over $500,000
Two income families that want to preserve separate assets.
Couples who bought assets together before marriage
Couples where one spouse has substantial debt, plans to undertake an expensive or extensive education, or one spouse has a professional practice.

III Arguments for and against seeking A PMA

A. Benefits
Opportunity to address and resolve financial and property issues
Opportunity to clearly state expectations
Exposes how each party feels about property and handling money.
Prevents surprise debts or asset characterization.
Agree in advance about college expenses for children

B. Problems created
Introduces business reality into an emotional and romantic situation
Creates perception (or reality) that one party may not treat the other fairly
Places women (or the less wealthy party) at a disadvantage

IV Issues addressed by the PMA and the drafting process

Rights created by the marriage: child and spousal support, fiduciary duties FC§721 et seq.
Statutory rights that create Community Property:
Statutory rights that create Community Property:
Business issues - Periera /VanCamp
Residence - Moore/Marsden and Walrath
Title - Evid C §662
Borrowing - Grinius & Gudelji,
Transmutation and commingling - Fam C§850 et al
Third party contracts that affect or include a “spouse”
Insurance, wills & trusts, creditors, employers
Deferred compensation, social security, and pension/ERISA

Rights on divorce - tracing for reimbursement: Mix and Marsden
Rights at death - inheritance, administration of the estate, family allowance/homestead
Tax matters: past liabilities, review & filing future returns, refunds & assessments
Immigration problems

V Protection from the Other Party’s creditors after marriage.

C/P is liable for debt incurred by either spouse before or during marriage. FC §910
S/P is not liable for other spouse’s debts. FC §913, However:
SP may be taken for a debt incurred by OP for necessaries of life if OP is personally liable for the debt.
Reimbursement is allowed if CP was available or OP had SP that was available but not used. FC§ 914
A married persons earnings may not be applied to debts that OP incurred before marriage.
But, such earnings must be kept in an account that OP does not have access to and is not commingled with any CP funds (except de minimis amounts) FC§ 911(a).
Give Notice to creditors on the credit application
If the PMA is binding between the parties it is binding on creditors who have notice. FC §1502, CC§1217.
State which assets/earnings are CP and which are SP
Record the PMA or abstract of the agreement for each parcel of real property
Uniform Fraudulent Transfer Act CC §3439 et seq.

VI Alternatives to a PMA

Careful accounting:
Separate management and accounting
separate borrowing and lending
Revocable trusts
Valuing assets at date of marriage.

VII Limitations and other concerns

Cannot fix child support amount or formula
Cannot fix or waive spousal support if it would facilitate, encourage or promote divorce. Spousal support may be waived in special cases. Pendleton & Fireman
Violation of public policy cancels the agreement and could violate criminal law
Validity is uncertain
Effective only upon marriage
Confirm CP expectations or maintain separate property?
All parties should be represented by independent counsel of own choosing.
Attorney should avoid:
Meeting with OP
Pro per participants
Recommending OP’s attorney
Last minute agreements

VII Drafting procedure: Uniform PMAA Statutory procedure + Bonds

Counseling the client, explaining the law, the options and emotional considerations.
Property, income, earnings and inheritance: What will be separate & when? What will be CP and when?
Concerns about OP’s interests:
Compensation for waiver of CP: during marriage, at divorce or death
Post marital vesting: lump sum or periodic formula
Modification and sunset or automatic renewal
Mutual separate disclosure of assets, debts, income, expense
Delivery of the document to Client for review & comment
Delivery of the document to OP for review & comment
Notice of terms of the agreement and need for separate counsel
Execution and notarization of PMA by parties
Execution & notarization of deeds & abstracts of the agreement
Attorney certification
File deeds & abstracts with County Recorder
Calendar periodic review or sunset dates

VIII Structuring an Agreement under the Uniform Pre Marital Agreement Act Family Code §1600 et seq.

A. Mandatory Clauses:
Description of what is and will be separate property
Description of what is and will be community property
Transmutation issues: Characterization of Contributions and Reimbursement
Gifts between the parties
Disclosure of Assets or Waiver FC §1652
Waiver of pre marital claims and causes of action
How taxes will be paid
Waiver of Probate or Marital rights

B. Optional clauses
How community property will be created
Property Settlement upon death, separation or divorce.
Anti-intent of the Lender clause to prevent creation of CP debts
Spousal support waiver
Waiver of reimbursement
No creation of community property (Dewley clause)
Anti- Moore/Marsden clause to prevent acquisition of CP in family home
Anti Periera/VanCamp clause to prevent acquisition of CP in SP business
Special terms for Primary Residence
IRC §121 clause for “deemed use” by the out spouse.

C. Boilerplate
Disclosure, discovery and representation by counsel.
Voluntary agreement, No duress
Independent counsel advice or waiver with notice of effect of the agreement and time & funds available for counsel Bonds 20024 Cal4th
How to modify the agreement
Severability of invalid clause
Applicable law
Certifications by attorneys
Dispute resolution

D. Sample terms for a PNA Agreement
Definitions and intent of the parties
Separation, termination, divorce
Intent to change statutory community property default laws
Income & earnings from management of assets & debts
Separate property earnings, assets and debts: Schedule A & B
Separate accounts + joint account
Community property earnings, assets and debts: Schedule C & D
No presumption of community property
Waiver of inadequate compensation
Characterization of current and future business goodwill & retirement plan rights
Characterization of appreciation on Separate and Community property
Ownership & Reimbursement Issues
waive or limit rights to tracing Fam C§920
Compensation for waiver of community property rights could “promote divorce”
Prevent or control transmutation
anti-Intent of the Lender clause
anti-accidental Transmutation
Expenses of daily living and joint expenses: joint account and a funding formula
Transfers and gifts to OP, gifts to other family and friends
Contemporaneous transfers - “signing bonus”
Future gifts
Payment and liability for debts

Personal issues:
Compensation for nursing services care cannot be enforced. Borelli v Brusseau
Other personal services also not enforceable. Bonds
No contest/no compliance forfeiture
furniture & furnishings
Spousal support - sophisticated & informed parties
severable from the agreement if not enforceable
Tax issues: filing joint or separate? Indemnity or guarantee
sharing the refund or assessment
gift taxes
Waivers, warnings and disclaimers
eliminate or change rights acquired upon marriage
eliminate or change obligations acquired upon marriage
General release of all claims
Change from equal to equitable distribution upon divorce
eliminate “palimony” rights if marriage does not occur or is invalid. Marvin
Express transmutation required. McDonald
Choice of law
Legal representation and fees
No discovery or investigation beyond mutual disclosure

IX Enforcement Issues

A. Choice of law. Every state & county is different
42 states allow spousal support waiver
After marriage fiduciary duties apply.
Fiduciary duty not presumed but can arise from a confidential/close relationship or great difference in age infirmity or wealth. Tyler v. Children’s Home Society
Foreign agreements in California.
Public policy issues. Parol evidence rule and statute of frauds Shaban

B. Amending the agreement.
Sunset or renewal
vesting schedule
mutual agreement

C. Setting aside the agreement: UPAA FC§ 1615 after 1986 and Bonds
voluntariness: burden is on party asserting lack of voluntariness
knowledge of rights/obligations and the effect of the terms & conditions
full & fair disclosure of all facts & circumstances
independent counsel or knowing waiver

Unconscionable at the time of execution and all of the following apply:
1. no full and fair disclosure
2. No voluntary, written waiver of right to more disclosure than that provided
3. Objecting Party did not and could not have known of the property or debts of the other party.

D. Defenses to enforcement of the agreement
Voidable marriage
Burden of Proof
Invalid contract

Cases & Sources
Planning for Love: The Politics of Prenuptial Agreemnts. 49 Stanford L. Rev. 887.
Separation agreements and Antenuptial Contracts. Lindey & Parley, Matthew Bender
Drafting Prenuptial Agreements. Skoloff, Singer & Brown, Aspen Law & Business
California Marital Settlement Agreements and other Family Law Agreements. Walzer & Gross. CEB 2d Ed.

Uniform Fraudulent Transfer Act CC §3439 et seq.
Uniform Pre Marital Agreement Act
Pendleton & Fireman
Borelli v Brusseau
Other personal services also not enforceable. Bonds
advice, time & funds for separate counsel but choice to not consult counsel. Bonds 24 Cal4th 200
. McDonald
Tyler v. Children’s Home Society