Opinion
NOT TO BE PUBLISHED
APPEALS from an order and judgment of the Superior Court of San Diego County, Super. Ct. No. ED049996 Alvin E. Green, Judge and Alan B. Clements, Commissioner.
McINTYRE, J.
Stephen D. Whelan appeals from an order and judgment in this dissolution action between him and his former wife, Lorraine Whelan. He contends the trial court erred: (1) in its choice of law ruling as to the parties' prenuptial agreement; (2) by not treating deeds referencing the prenuptial agreement as enforceable contracts; and (3) by denying his request for reimbursement in the division of the family residence under Family Code section 2640. (All undesignated statutory references are to this code.) Lorraine filed a cross-appeal contending she was entitled to a section 2640 reimbursement for using part of a separate inheritance to pay off an equity line of credit secured by a deed of trust against the family residence. We reject all contentions and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Stephen and Lorraine began dating when they were 17- and 18-years-old, respectively. They cohabitated for a period of time and purchased a home together in England (the English Property). In November 1986, a few days before they married, the couple executed a prenuptial agreement (the Agreement) in England where they both resided. The Agreement only applied if "the marriage [broke] down" and it provided a formula for dividing assets based on individual incomes, with the higher wage earner receiving a greater percentage of the joint assets (Entitlement = total joint assets x [individual income ÷ total joint income]).
About two weeks later, the couple moved to California and during the course of their marriage they purchased three parcels of real property in 1988 (the Hilmar Property), 1993 (the Quail Canyon Property) and 1997 (the Minnesota Property). The deeds for these properties all noted that the couple held the property as joint tenants or as community property "with interests and ownership determined by their [Agreement] . . . ."
In November 2000, Lorraine petitioned for dissolution of the marriage claiming that all of the parties' property was community property except for an inheritance of hers in a credit union account. The issue of the validity of the Agreement was bifurcated from the dissolution proceeding and heard first. Judge Alvin E. Green noted that the Agreement did not specify a place of performance and interpreted the contract according to the law where it was made. (Civ. Code, § 1646.) He concluded that the Agreement was unenforceable under English law and thus unenforceable in California.
Commissioner Alan B. Clements tried the remaining issues and, as relevant to this appeal, denied reimbursement under section 2640 to Stephen for his alleged separate property interest in the Quail Canyon Property and to Lorraine for using part of her separate inheritance to pay off an equity line of credit secured by a deed of trust against the Quail Canyon Property. The trial court later denied Stephen's request for a new trial and entered judgment. Stephen timely appealed and Lorraine filed a cross-appeal. Respondent Richard Kipperman is the trustee of Lorraine's bankruptcy estate.
DISCUSSION
I. Stephen's Appeal
A. Prenuptial Agreement
Stephen argues that the Agreement is valid and enforceable under California law and that the trial court erred by applying English law to the Agreement. Alternatively, even assuming English law applied, Stephen argues that the trial court improperly applied English law when it declared the Agreement to be unenforceable rather than considering the Agreement as a circumstance of the case. Kipperman argues that the trial court properly applied English law; alternatively, the Agreement is unenforceable as a matter of law in California. As explained below, the Agreement is void as against the public policy of this State because it promoted dissolution of the marriage. Accordingly, under either English or California law, the trial court properly disregarded it.
Under English law, prenuptial agreements are considered to be a circumstance of the case and a court may decide what weight should, in the interest of justice, attach to it. In California, however, prenuptial agreements are favored and prospective spouses are generally permitted to contract as to any matter that does not violate public policy. (§ 1612, subd. (a)(7); In re Marriage of Higgason (1973) 10 Cal.3d 476, 485-486, disapproved on other grounds in In re Marriage of Dawley (1976) 17 Cal.3d 342, 352.) A prenuptial agreement that encourages or promotes dissolution is unenforceable because it offends the public policy of this State to foster and protect marriage. (In re Marriage of Dawley, supra, 17 Cal.3d at pp. 346, 350.) For example, a prenuptial agreement whereby the husband promised to give the wife his separate property house and "$500,000.00 or one-half of my assets, whichever is greater, in the event of a divorce" was unenforceable as promoting dissolution. (In re Marriage of Noghrey (1985) 169 Cal.App.3d 326, 329-331.) Although an intended purpose of the agreement was to discourage the husband from obtaining a divorce, the effect was to encourage the wife to seek a dissolution "with all deliberate speed, lest the husband suffer an untimely demise, nullifying the contract, and the wife's right to the money and property." (Id. at p. 331.)
In California, all property acquired during marriage is community property unless it comes within a specified exception (§ 760) and such property is to be equally divided upon dissolution of the marriage. (§ 2550.) Here, the Agreement redefined what would have been community property based on a formula that applied only if the marriage broke down. The Agreement promoted the dissolution of the marriage because Stephen, as the high wage earner, could claim a larger share of the assets accumulated during the marriage by dissolving it. Accordingly, the Agreement is void as against public policy and the trial court properly disregarded it regardless of the choice of law issue. This conclusion moots Stephen's argument that the trial court erred by deciding the conflict of law issue without considering any evidence.
B. Deeds as Contracts
The deeds for the Quail Canyon and Hilmar Properties noted that the couple held title as joint tenants or as community property "with interests and ownership determined by their [Agreement]." The trial court concluded that the community property presumption applied because: (1) they held title jointly and there was insufficient evidence to rebut the community property presumption (§ 2581); (2) the recitals to the Agreement and also to joint tenants or community property were inconsistent and created an ambiguity; (3) reference to the Agreement was insufficient to affect a transmutation under section 852; and (4) the recitals to the Agreement did not create independent contracts. Stephen contends that the deeds were valid and enforceable as separate contracts and that the trial court erred by treating these assets as community property. We disagree.
There is a rebuttable presumption that all real property acquired by a spouse during marriage, while domiciled in California, is community property. (§ 760; In re Marriage of Weaver (2005) 127 Cal.App.4th 858, 864.) Additionally, property acquired by the parties during marriage in joint form is presumed to be community property. (§ 2581.) This presumption may be rebutted only by (a) deed or other evidence of acquiring title that the property is separate, or (b) "[p]roof that the parties have made a written agreement that the property is separate property." (§ 2581.) The writing must contain "an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." (§ 852, subd. (a).) "[A] writing signed by the adversely affected spouse is not an 'express declaration' for the purposes of section [852] unless it contains language which expressly states that the characterization or ownership of the property is being changed." (Estate of MacDonald (1990) 51 Cal.3d 262, 272 (MacDonald); In re Marriage of Leni (2006) 144 Cal.App.4th 1087, 1096 [notation in parties' escrow instructions stating proceeds from sale of the family residence "to be split 50/50" was not an express declaration that the character of the property was being changed].) The question of whether a writing meets the MacDonald test must be made by reference to the writing itself, without resort to parol evidence and presents a question of law subject to independent review. (In re Marriage of Barneson (1999) 69 Cal.App.4th 583, 588.)
As a threshold matter, the trial court properly applied the section 2581 community property presumption because the deeds indicated that the couple held the property as joint tenants or as community property. Accordingly, the question presented is whether reference to the Agreement in the deeds satisfied section 852.
The Agreement applied only if the marriage broke down and it is unclear what the parties intended when they referenced the Agreement, but also declared that they held the property jointly or as community property. Based on this ambiguity the trial court properly rejected Stephen's argument that reference to the Agreement in the deeds satisfied the writing requirement of section 852. Moreover, Stephen's contention that the deeds should be considered as valid independent contracts fails as he provided no authority showing how the Agreement, a contract that is unenforceable in California, becomes enforceable merely because the parties mention it in other documents.
C. Section 2640 Reimbursement Claim
1. Facts
In 1992, the parties sold the English Property and they transferred the proceeds from the sale into escrow for the down payment on the Quail Canyon Property. At trial, Stephen claimed that the parties were entitled to a separate property section 2640 credit corresponding to the their respective interest in the English Property. To support his contention, Stephen presented a letter dated July 25, 1984 from solicitor Martin West (the July letter) stating that the enclosed trust deed provided that the parties would have distinctive shares in the proceeds of the sale of the English Property, 89.47 percent to Stephen and 10.53 percent to Lorraine. Lorraine objected to the letter on hearsay and secondary evidence grounds and the trial court excluded the document as inadmissible hearsay that did not fall into an exception to the hearsay rule. Stephen also testified that he owned 89.47 percent of the English Property; Lorraine, however, did not recall any type of agreement with Stephen regarding ownership of the English Property.
Commissioner Clements ultimately found that Stephen failed to meet his burden of proof, noting that his testimony regarding a written agreement could not prove his separate property interest. Stephen moved for a new trial, arguing that newly discovered evidence would have changed the outcome at trial. Specifically, Stephen stated that his attempts to obtain a copy of the trust deed and to find Mr. West before trial were unsuccessful and that he ultimately located Mr. West after trial through a mass mailing. Stephen also presented a declaration from Mr. West confirming that he prepared the July letter in the ordinary course of his business as a solicitor. Commissioner Clements denied the new trial motion.
2. Analysis
Stephen contends the trial court erroneously denied his request for a section 2640 reimbursement and his new trial motion. We disagree.
Under section 2640, a separate property contribution to the acquisition of any community property must be reimbursed unless the spouse who made the contribution waived the reimbursement right in a signed writing. As used in this section, contributions to the acquisition of any community property includes "down payments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property," but does not include "payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property." (§ 2640, subd. (a).) Tracing funds to a separate property source is sufficient to establish a prima facie statutory right of reimbursement in a marital action dividing the community estate (In re Marriage of Cochran (2001) 87 Cal.App.4th 1050, 1056) and the amount of reimbursement is the value of the separate property contributions at the time they were made. (§ 2640, subd. (b); In re Marriage of Walrath (1998) 17 Cal.4th 907, 924.)
A party seeking reimbursement under section 2640 has the burden of proving the money contributed to acquire community property came from a separate property source. (In re Marriage of Marsden (1982) 130 Cal.App.3d 426, 441.) Whether the spouse claiming a separate property interest has adequately met his or her burden of tracing to a separate property source is a question of fact and the trial court's holding on the matter must be upheld if it is supported by substantial evidence. (In re Marriage of Braud (1996) 45 Cal.App.4th 797, 825.) On appeal, we resolve all conflicts in the evidence in favor of the prevailing party (In re Marriage of Klug (2005) 130 Cal.App.4th 1389, 1398) and the trial court's factual determinations are binding if supported by substantial evidence (In re Marriage of Grinius (1985) 166 Cal.App.3d 1179, 1185).
Lorraine concedes, and we agree, that Stephen adequately traced funds used to purchase the Quail Canyon Property to the sale of the English Property. Accordingly, the issue presented is whether Stephen established that he had a 89.47 percent separate property interest in the English Property. The trial court correctly noted that Stephen's testimony was insufficient to establish the percentage of his separate property interest in the English Property (In re Marriage of Braud, supra, 45 Cal.App.4th at p. 823) and that the documentary evidence he presented at trial did not support his claim. Additionally, Stephen does not challenge the trial court's decision to exclude the July letter.
Even assuming the court had admitted the July letter, it did not prove that the parties actually executed the trust deed in the percentages indicated. The July letter only indicated that Mr. West prepared a trust deed showing the parties' respective ownership interest in the English Property and that the parties were to sign the document and return it to him. Stephen presented no documentary evidence showing the couple executed the trust deed; in fact, the transfer document for the English Property listed the parties' names, but did not indicate an unequal ownership. Accordingly, substantial evidence supported the trial court's finding that Stephen had not met his burden of proof on the issue.
Finally, we cannot conclude that the trial court erred in denying Stephen's new trial motion. To obtain a new trial based upon newly discovered evidence, the moving party must establish that the evidence was (1) material, (2) newly-discovered, and (3) the proponent used reasonable diligence to discover or produce the evidence at trial. (Code Civ. Proc., § 657, subd. (4); Sherman v. Kinetic Concepts, Inc. (1998) 67 Cal.App.4th 1152, 1161.) New evidence is "material" if it is of a type likely to bring about a different result. (Sherman v. Kinetic Concepts, Inc., supra, 67 Cal.App.4th at p. 1161.) We review the denial of a motion for a new trial for abuse of discretion. (Id. at pp. 1160-1161.)
In his declaration supporting the new trial motion, Stephen set forth his efforts to locate the trust deed for the English Property, both before and after trial. Stephen concluded that the trust deed had likely been destroyed and attempted to locate Mr. West to authenticate the July letter regarding the parties' ownership interests in the English Property. Assuming, without deciding, that Stephen exercised reasonable diligence to discover or produce Mr. West for trial, the new evidence is not likely to bring about a different result.
In a sworn declaration, Mr. West stated that he prepared a trust deed for the couple, but did not have the document, had no further recollection of the transaction and could not recall the precise ownership interest of each party in the property. Mr. West also stated that he normally sent trust deeds to the "Stamping Office" and that after completion of the transaction he would have sent the original trust deed to the parties, retained it or sent it to the mortgagee. This new evidence, however, similarly failed to show that the parties actually executed the trust deed. Thus, the trial court properly denied the new trial request.
II. Kipperman's Appeal
Lorraine sought a section 2640 reimbursement in the amount of $29,452.75 for using part of her separate inheritance to pay off an equity credit line secured by a deed of trust against the Quail Canyon Property. At trial, Lorraine testified that the couple used the credit line to make some mortgage payments and pay property taxes on the Quail Canyon Property. She could not recall whether they used the loan for home improvements, but this statement conflicted with her earlier deposition testimony that the credit line had not been used for home improvements and her check register showed no home improvement payments. Although the trial court found that Lorraine had adequately traced her separate property inheritance to a joint checking account used to pay off the loan, it concluded that she was not entitled to reimbursement because the claim did not fail within the purview of section 2640.
Kipperman claims the trial court erred when it denied Lorraine's reimbursement claim because paying off the loan added equity to the property regardless of the original purpose of the loan. We disagree.
Not all expenses associated with acquisition or ownership of property are reimbursable and the types of separate property payments that are reimbursable are those which contribute to the acquisition of equity in the property either directly, or indirectly by paying the cost of improvements. (In re Marriage of Nicholson & Sparks (2002) 104 Cal.App.4th 289, 296.) When the couple opened the equity line of credit they borrowed against the existing equity in the Quail Canyon Property; thus, when Lorraine paid off the loan, the couple did not acquire new equity in the property. Accordingly, the trial court properly denied her reimbursement request because her payment of the equity line of credit did not contribute to the acquisition of property within the meaning of section 2640.
In his reply brief, Kipperman limits the appellate remedy sought to remanding the matter to the trial court to determine how much of the funds were used for purposes not excluded by subdivision (a) of section 2640. Lorraine presented evidence that the couple used the credit line to make mortgage payments, but did not present any evidence showing what portion of the payments reduced the principal of the loan (reimbursable) as contrasted to interest on the loan (not reimbursable). (§ 2640, subd. (a).) Lorraine, however, had every opportunity to submit such evidence at trial and there is no reason she should get "a second bite at the apple." Kipperman is entitled to his costs on appeal.
DISPOSITION
The order and judgment are affirmed.
WE CONCUR: NARES, Acting P. J., McDONALD, J.