A prenuptial agreement is a legal tool that allows a couple to plan how certain issues will be resolved in the event that they divorce. There are a number of issues that can be included in these agreements. For example, spouses may want to determine ahead of time how their assets and other property will be divided. California law generally treats all assets gained by one or both spouses during a marriage as community property to be divided equally upon divorce. Although spouses may use a prenuptial agreement to alter this arrangement, a recent case out of California’s Second District Court of Appeals shows just how detailed such a contract should be.
Husband and Wife began divorce proceedings in 2014, following roughly 21 years of marriage. They entered into a prenuptial agreement shortly before marrying, and much of the litigation related to the divorce revolved around how that document should be interpreted. The spouses pledged in the agreement that all property that they currently owned would be considered their separate property in the event of a divorce, and that any property gained by one spouse during the marriage – including salary income – would also be separate. The agreement specifically listed furniture, jewelry, bank accounts, and expected inheritances as separate property. It did not mention employment-related retirement accounts or deferred compensation.
At trial, the parties disagreed about whether their individual retirement savings should be considered separate or community property. A trial court ultimately sided with Husband, finding that the retirement benefits weren’t covered as “salary” under the prenuptial agreement. Instead, the court said the term salary referred to “money received from a paycheck and nothing more.” Because the court found no evidence to show that the spouses meant to include retirement benefits in the salary category, it held that the benefits must be deemed community property.
The Second Circuit reached a different conclusion on appeal, finding that the agreement’s “plain language” dictated that the benefits be deemed separate property. It pointed specifically to a provision stating that property acquired by one spouse in the future, “from any source,” would be considered separate “except as herein provided and subject to further written agreement between the parties.” Because the agreement did not specifically state that retirement benefits would go to the community, the Court said the benefits must be treated as separate property.
As a result, the Second Circuit reversed the district court’s decision. It also remanded the case back to the lower court with instructions to issue an order determining that the retirement benefits are separate property.
If you’re considering a divorce or are grappling with community property and other issues in California, contact San Jose divorce lawyer John S. Yohanan. With more than 30 years of experience, Mr. Yohanan is an accomplished family law attorney who has helped a number of clients resolve a wide variety of marital disputes. Call our office at (408) 297-0700 or contact us online to schedule a consultation.
Related blog posts: