Sturm v. Moyer

Filed 2/15/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
ROBERT STURM, B284553
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC637013)
v.
TODD ANDREW MOYER et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court for Los Angeles
County, Susan Bryant-Deason, Judge. Reversed.
Landsberg Law and Ian S. Landsberg for Plaintiff and Appellant.
Law Offices of Warren R. Shiell and Warren R. Shiell for
Defendants and Respondents.
The question presented in this case is one of first impression:
Assuming fraudulent intent, can the Uniform Voidable Transactions
Act (Civ. Code, § 3439 et seq., formerly known as the Uniform
Fraudulent Transfer Act, or UFTA)1 apply to a premarital agreement in
which the prospective spouses agree that upon marriage each spouse’s
earnings, income, and other property acquired during marriage will be
that spouse’s separate property? After examining the language of the
relevant statutes, the legislative history, and public policy
considerations, we conclude that it can.2
BACKGROUND
Our discussion of the background facts is based upon the
allegations of the first amended complaint. Because this appeal is
taken from a judgment of dismissal following the sustaining of a
demurrer, we treat those alleged facts as true for the purposes of this
appeal. (Thaler v. Household Finance Corp. (2000) 80 Cal. App. 4th
1093, 1098.)
In July 2005, Robert Sturm, plaintiff in this action, obtained a
$600,000 judgment in bankruptcy court against Todd Moyer. The
judgment, which is not dischargeable in bankruptcy, was renewed in
January 2015. Following the original entry of judgment and through
1 The UFTA was renamed, with some amendments not relevant to this
case, effective January 1, 2016. (Stats. 2015, ch. 44 (Sen. Bill No. 161), § 3.)
Because the premarital agreement was executed before that date, we will
refer to the relevant act as the UFTA; we will note when the current version
of the act is different than relevant provisions of the UFTA.
2 We have found no case from any court in any community property
jurisdiction that has addressed this issue.
2
July 2016, Sturm conducted several judgment debtor examinations of
Moyer, during which Moyer claimed to have no assets, and claimed that
he did not intend to work ever again so he would not have to pay any
portion of the judgment.
During a judgment debtor examination in July 2016, Sturm
discovered that Moyer had married Jessica Schell in or around 2014,
and that they had entered into a premarital agreement. The premarital
agreement provided that each party’s earnings and income, and any
property acquired during the marriage by each spouse, would be that
spouse’s separate property; each party acknowledged that these
earnings, income, and property otherwise would be community
property. The agreement attached as exhibits lists of each party’s
significant real and personal property and liabilities in which that party
currently held an interest; Moyer’s list (Exhibit A) included Sturm’s
judgment against him, as well as several liens and pending lawsuits.
The agreement also included a kind of sunset provision (paragraph
5.15), which provided that in the event the judgments and liens against
Moyer listed in Exhibit A, and any money judgment entered against
him during marriage, lapse or otherwise become unenforceable for any
reason, the parties’ earnings and income, and any assets purchased
with those earnings and income, from the date of the marriage will be
treated as community property, with certain exceptions. Finally, the
premarital agreement included a provision allowing the parties to open
a jointly owned checking account to meet their reasonable present and
future living expenses, but providing that any property acquired with
funds from the account will be owned in the ratio of the respective
3
contributions of each party’s separate property into the account; it also
expressly stated that the account will not create any community
property interest.3
Sturm filed the instant lawsuit against defendants Moyer and
Schell, asserting a single cause of action under the UFTA to set aside
the alleged transfer of Moyer’s community property interest in Schell’s
earnings and income. The original complaint attached as an exhibit the
Moyer-Schell premarital agreement. Following defendants’ successful
demurrer to the original complaint, Sturm filed a first amended
complaint alleging the same cause of action. Defendants again
demurred, and the trial court sustained the demurrer without leave to
amend.
In sustaining the demurrer, the trial court found that “[u]nder In
re Marriage of Dawley (1976) 17 Cal. 3d 342 and Family Code § 1500,
defendants were entitled to alter the presumptions under Family Code
§ 760 and Family Code § 910(a) that property acquired during the
marriage is community property and that the community estate would
3 Further, the agreement included the following provision: “It is the
express intention of the parties to opt out of, and to waive, the community
property system, the marital property system, the matrimonial property
system and out of any other system that provides for the acquisition of
interest in property or the distribution of property, or both, by virtue of
marriage. The only way in which community property can be created during
the marriage is by a valid written transmutation signed by both parties
changing separately owned property into community property or the
acquisition of an asset with income and earnings of a party that are
community property after the modification of this Agreement pursuant to
paragraph 5.15.”
4
be liable to satisfy any judgments against defendant Todd Moyer. Even
though the Premarital Agreement was not effective until Defendants
married, pursuant to Family Code § 1613, Defendants still had the
right to alter the presumptions of community property under Dawley.”
A judgment of dismissal was entered, from which Sturm timely
filed a notice of appeal.
DISCUSSION
Sturm has alleged, in substance, that the Moyer-Schell premarital
agreement effected a transfer of Moyer’s interest in community property
(i.e., Schell’s earnings and income), and that the actual intent of this
transfer was to hinder, delay, or defraud Moyer’s creditors, including
Sturm. To decide whether the agreement is one to which the UFTA
applies, we must examine the relevant provisions of both the UFTA and
the Family Code.
A. Relevant UFTA Provisions
At the time of the events at issue in this lawsuit, the UFTA
provided, in relevant part, that “[a] transfer made or obligation incurred
by a debtor is fraudulent as to a creditor . . . if the debtor made the
transfer or incurred the obligation . . . [¶] (1) With actual intent to
hinder, delay, or defraud any creditor of the debtor.”4 (Civ. Code,
4 Because the case before us involves allegations of actual fraud, as
described in Civil Code, former section 3439.04, we do not include in our
discussion the conditions for constructive fraud set forth in the statute.
5
former § 3439.04; the current version of this statute replaces
“fraudulent” with “voidable.”) A “transfer” was defined in the UFTA to
mean “every mode, direct or indirect, absolute or conditional, voluntary
or involuntary, of disposing of or parting with an asset or an interest in
an asset, and includes payment of money, release, lease, and creation of
a lien or other encumbrance.” (Civ. Code, former § 3439.01, subd. (i);
the definition is found as subd. (m) of the current version, with one
amendment that is irrelevant here and would not affect our analysis.)
Civil Code section 3439.06 contains provisions regarding when a
transfer is made and deemed perfected for purposes of the UFTA.5
Subdivision (d) of that statute provides that “A transfer is not made
until the debtor has acquired rights in the asset transferred.” (Civ.
Code, § 3439.06, subd. (d).)
B. Relevant Family Code Provisions
Under California law, all property (with some statutory
exceptions) acquired by a married person while domiciled in California
is community property (Fam. Code, § 760), and each spouse’s respective
interests in community property “are present, existing, and equal”
during the marriage (Fam. Code, § 751). However, the Family Code
allows a couple by agreement entered into during or before the
5 The current version of Civil Code section 3439.06 is almost identical to
the former version found in the UFTA; the differences do not change the
analysis.
6
marriage to change the character of the property they acquire during
marriage from community property to separate property.
Such an agreement may be made during the marriage under
Family Code section 850, which provides that, subject to certain
provisions, “married persons may by agreement or transfer, with or
without consideration, do any of the following: [¶] (a) Transmute
community property to separate property of either spouse. [¶]
(b) Transmute separate property of either spouse to community
property. [¶] (c) Transmute separate property of one spouse to
separate property of the other spouse.” One of the provisions referenced
in that section is Family Code section 851, which states: “A
transmutation is subject to the laws governing fraudulent transfers.”
Before the marriage, couples may change the character of property
acquired during marriage from community property to separate
property by means of a premarital agreement under the Uniform
Premarital Agreement Act (Fam. Code, § 1600 et seq., hereafter the
UPAA).6 The UPAA provides that the parties to a premarital
agreement may contract with respect to various issues, including:
“[t]he rights and obligations of each of the parties in any of the
property[7] of either or both of them whenever and wherever acquired or
6 Family Code section 1500 also authorizes the use of a premarital
agreement to change the character of property acquired during marriage. It
provides: “The property rights of spouses prescribed by statute may be
altered by a premarital agreement or other marital property agreement.”
7 “Property” is defined in the UPAA as “an interest, present or future,
legal or equitable, vested or contingent, in real or personal property,
including income and earnings.” (Fam. Code, § 1610, subd. (b).)
7
located” (Fam. Code, § 1612, subd. (a)(1)), and “[a]ny other matter,
including their personal rights and obligations, not in violation of public
policy or a statute imposing a criminal penalty” (Fam. Code, § 1612,
subd. (a)(7)). The premarital agreement “becomes effective upon
marriage.” (Fam. Code, § 1613.)
The characterization of property as separate or community is
important when it comes to liability for debts incurred by either spouse,
including debts incurred by a spouse before the marriage. Family Code
section 910 states in relevant part: “Except as otherwise expressly
provided by statute, the community estate is liable for a debt incurred
by either spouse before or during marriage, regardless of which spouse
has the management and control of the property and regardless of
whether one or both spouses are parties to the debt or to a judgment for
the debt.” (Fam. Code, § 910, subd. (a).) Notwithstanding this
provision, the earnings of the non-debtor-spouse8 -- which are
community property under Family Code section 760 -- “are not liable for
a debt incurred by [the other] spouse before marriage.” (Fam. Code,
§ 911, subd. (a).) Those earnings remain not liable for the debtor-
spouse’s premarital debt, however, only “so long as they are held in a
deposit account in which the person’s spouse has no right of withdrawal
and are uncommingled with other property in the community estate,
except property insignificant in amount.” (Ibid.)
8 “Earnings” is defined as “compensation for personal services performed,
whether as an employee or otherwise.” (Fam. Code, § 911, subd. (b)(2).)
8
In short, although a married couple’s community property is liable
for the premarital debts of either spouse, a portion of that community
property -- the non-debtor-spouse’s earnings and income -- is shielded
from liability for that premarital debt to the extent that those earnings
and income are held in an account to which the debtor-spouse does not
have access and are not commingled (except for insignificant amounts).
C. Does the Premarital Agreement Alleged Here Effect a “Transfer”
Within the Meaning of the UFTA?
Having set forth the relevant statutory provisions, we consider
whether the UFTA applies to premarital agreements (such as the one at
issue here) that make each spouse’s earnings, income, and other assets
acquired during marriage that spouse’s separate property. Resolution
turns on two key questions. First, does such an agreement effect a
“transfer” under the UFTA? Second, was the agreement intended to
“hinder, delay, or defraud any creditor” of the debtor-spouse? The first
question is one of law, and can be resolved in this appeal from a
demurrer judgment. The second question is one of fact, which cannot be
determined on a demurrer or an appeal from a demurrer. We simply
note that the complaint alleges sufficient facts to meet the requirement
of fraudulent intent, but proof of those facts awaits trial.
Considering the first question, as noted, “transfer” under the
UFTA has a broad meaning. It includes “every mode, direct or indirect,
absolute or conditional, . . . of disposing of or parting with an asset or an
interest in an asset.” (Civ. Code, former § 3439.01, subd. (i); currently,
Civ. Code, § 3439.01, subd. (m).) Under this definition, there is no
9
doubt that an agreement made during marriage in which a debtor-
spouse agrees that the non-debtor-spouse’s future earnings, income, or
assets would be the non-debtor-spouse’s separate property constitutes a
transfer because the debtor-spouse is parting with an interest in an
asset -- the community property represented by the other spouse’s
earnings -- in which he or she has a “present [and] existing . . .
interest[]” (Fam. Code, § 751) during continuance of the marriage. (See
State Bd. of Equalization v. Woo (2000) 82 Cal. App. 4th 481.)
But what if this same agreement is made in a premarital
agreement? Because the parties are not married when the agreement is
entered into, the debtor-spouse has no present and existing interest in
the community property represented by the non-debtor-spouse’s future
earnings, income, and assets. Thus, it can be argued (as defendants do
here) that no transfer takes place because, by the premarital
agreement, the spouses altered the applicability of the community
property laws such that neither spouse obtains any interest in
community property upon marriage. On the other hand, it can be
argued (as Sturm does here) that by law the premarital agreement does
not become effective until marriage (Fam. Code, § 1613), at which point
two things happen -- each spouse obtains a present interest in
community property by operation of law (Fam. Code, § 751) and then,
by agreement, each spouse transfers to the other his or her community
interest in the other’s earnings, income, or other property acquired
during the marriage.
To determine which argument prevails, “‘we must ascertain the
intent of the drafters [of the UFTA and Family Code] so as to effectuate
10
the purpose of the law. [Citation.] Because the statutory language is
generally the most reliable indicator of legislative intent, we first
examine the words themselves, giving them their usual and ordinary
meaning and construing them in context.’ [Citation.] ‘[E]very statute
should be construed with reference to the whole system of law of which
it is a part, so that all may be harmonized and have effect.’ [Citation.]
‘Where as here two codes are to be construed, they “must be regarded as
blending into each other and forming a single statute.” [Citation.]
Accordingly, they “must be read together and so construed as to give
effect, when possible, to all the provisions thereof.” [Citation.]’
[Citation.]” (Mejia v. Reed (2003) 31 Cal. 4th 657, 663.)
“When the plain meaning of the statutory text is insufficient to
resolve the question of its interpretation, the courts may turn to rules or
maxims of construction ‘which serve as aids in the sense that they
express familiar insights about conventional language usage.’
[Citation.] Courts also look to the legislative history of the enactment.
‘Both the legislative history of the statute and the wider historical
circumstances of its enactment may be considered in ascertaining the
legislative intent.’ [Citation.] Finally, the court may consider the
impact of an interpretation on public policy, for ‘[w]here uncertainty
exists consideration should be given to the consequences that will flow
from a particular interpretation.’ [Citation.]” (Mejia v. Reed, supra, 31
Cal.4th at p. 663.)
1. Statutory Language
11
As the Supreme Court observed in Mejia v. Reed, the language of
the UFTA on its face applies to all transfers, including transfers of
interests in community property during marriage and in marriage
settlement agreements. (Mejia v. Reed, supra, 31 Cal.4th at p. 664.)
But the UFTA also states that “[a] transfer is not made until the debtor
has acquired rights in the asset transferred.” (Civ. Code, § 3439.06,
subd. (d).)
As we have noted, under the Family Code, a spouse has a present
and existing interest in community property during marriage. (Fam.
Code, § 751.) But a premarital agreement is, by statutory definition,
“an agreement between prospective spouses made in contemplation of
marriage.” (Fam. Code, § 1610, subd. (a), italics added.) Thus, at the
time the premarital agreement is entered into, neither spouse has
“acquired rights” (Civ. Code, § 3439.06, subd. (d)) in community
property. On the other hand, a premarital agreement does not become
effective until marriage. (Fam. Code, § 1613 [“A premarital agreement
becomes effective upon marriage”].) This suggests that at the moment
of marriage, each spouse acquires rights to community property that
are (if the premarital agreement calls for it) immediately transferred.
Defendants contend there is no transfer, because the UPAA allows
spouses to “opt out of the community property system,” and therefore
neither spouse ever acquires an interest in community property. But
this characterization is not accurate. The UPAA does not state that a
couple may prospectively “opt out” of the statutory community property
law. Instead, the UPAA provides in substance that -- “effective upon
marriage” (Fam. Code, § 1613) -- the couple may reorder from
12
community to separate the property rights established by the
community property statutes: “Parties to a premarital agreement may
contract with respect to . . . [¶] [t]he rights and obligations of each of the
parties in any of the property of either or both of them whenever and
wherever acquired.” (Fam. Code, § 1612, subd. (a)(1); see also Fam.
Code, § 1500 [providing that “[t]he property rights of spouses prescribed
by statute may be altered by a premarital agreement”].) Thus, by such
a contract the parties do not “opt out” of community property law as if it
never applied. Rather, they acknowledge that community property law
governs their “rights and obligations . . . [in each other’s property]
whenever and wherever acquired” (Fam. Code, § 1612, subd. (a)(1)), and
they simply agree to reorder those rights and obligations effective upon
marriage. (In re Marriage of Dawley, supra, 17 Cal.3d at p. 358
[describing premarital agreement in which parties agreed that earnings
and property acquired by a spouse during marriage would be that
spouse’s separate property as a “reordering of property rights to fit the
needs and desires of the couple”].)
Nonetheless, although the statutory language suggests that such
a contract effects a transfer within the meaning of the UFTA, especially
given the broad definition of “transfer,” the statutory language does not
conclusively resolve the issue. Therefore, we must look to the
legislative history to see if it discloses the legislative intent.
2. Legislative History
The legislative history of the UFTA is enlightening, but not
dispositive. Civil Code section 3439.06, enacted in 1986 as part of
13
Senate Bill No. 2150 (Stats. 1986, ch. 383, § 2, pp. 1591-1592),
addresses when a transfer is made and deemed perfected for purposes
of the UFTA. The Report of Assembly Committee on Finance and
Insurance on Senate Bill No. 2150 set forth the comments of the
National Conference of Commissioners on Uniform State Laws as
reflecting the intent of the Committee. (Report of Assembly Committee
on Finance and Insurance on Sen. Bill No. 2150, found at Assembly
Journal, vol. 5, pp. 8569-8587 (July 8, 1986) at p. 8570.) The comments
explained the purpose of section 3439.06, and expressly referred to
transfers as including “execution of a marital or premarital agreement
for the disposition of property owned by the parties to the agreement.”
(Id. at p. 8582.) This reference shows an intent that premarital
agreements disposing of “property owned by the parties” at the time of
execution would constitute a transfer under the UFTA. But the
reference does not literally apply to the premarital agreement here,
because when the agreement was executed neither spouse “owned” an
interest in the prospective community property that, upon marriage
would be “transferred,” i.e., become separate property.
With regard to the legislative history related to premarital
agreements as reflected in the Family Code and its predecessor
statutes,9 we note that the issue with which we are now faced was
9 Until 1994, the statutes relating to family law, including the Family
Law Act, were found in the Civil Code, Code of Civil Procedure, Evidence
Code, and Probate Code. In 1992, the Legislature repealed all those statutes
and recast them as the Family Code, operative January 1, 1994. (Stats. 1992,
ch. 162, §§ 1-14, pp. 463-722.)
14
briefly addressed in a background study -- Reppy, Debt Collection from
Married Californians: Problems Caused by Transmutations, Single-
Spouse Management, and Invalid Marriage, 18 San Diego L. Rev. 143
(1981) (hereafter Reppy) -- prepared for the California Law Revision
Commission for its study of whether the law relating to community
property should be revised.10 (Liability of Marital Property for Debts, 17
Cal. L. Revision Comm’n Reports 1, 3 (1984).) In the background study,
Professor Reppy addresses myriad issues involving debt collection from
married people under California law as it then existed, pointing out
problems where he saw them, and recommending changes to the law.
In a short section on premarital agreements, Professor Reppy
noted that the placement of the then-existing statutes governing
premarital agreements in the Family Law Act (the article was written
before the enactment of the Family Code or the UPAA), “implies that
such a contract is a means for varying the statutory rules that would
otherwise attach to a marriage. A typical ‘marriage settlement’[11] is an
agreement to live separate in property. By permitting such a contract,
[former Civil Code] section 5134 creates a situation whereby a
community of property never exists between the spouses. Thus when
after marriage W labors at her job and is paid wages, they are at all
10 The Commission’s study was authorized by Resolution Chapter 65 of
the Statutes of 1978. (Liability of Marital Property for Debts, supra, 17 Cal.
L. Revision Comm’n Reports at p. 3.)
11 Professor Reppy noted that former section 5134 of the Civil Code
provided that “parties anticipating marriage may make ‘marriage
settlements.’” (Reppy, supra, 18 San Diego L. Rev. at p. 226.)
15
times hers. The alternative construction is that the community
property statutes, such as [former Civil Code] section 5110, attach to
W’s wages and then the antenuptial contract immediately converts the
coownership between H and W to the sole ownership of W. The first
interpretation is preferable. Under that interpretation, a creditor of
insolvent H unable to reach W’s separate property could not object to
characterization of the earnings as W’s separate property on grounds H
was already or was thereby rendered insolvent. Under the alternative
view, there is a transfer at the time W is paid which is constructively
fraudulent under [the Uniform Fraudulent Conveyance Act12].” (Reppy,
supra, 18 San. Diego L. Rev. at p. 226.)
In his conclusion of the premarital agreement section Professor
Reppy stated, “With respect to creditors existing at the time of making
of the [premarital] agreement, rather than at the time of an alleged
subsequent ‘transfer’, the agreement to live separate in property should
not be constructively fraudulent. The debtor spouse simply changes his
status from single to married with the creditor having the same rights
as existed before the change of status. Of course actual fraud might be
proved to give the creditor relief under [the Uniform Fraudulent
Conveyance Act].”13 (Reppy, supra, 18 San. Diego L. Rev. at p. 227.)
12 The Uniform Fraudulent Conveyance Act (Stats. 1939, ch. 329, § 2, p.
1667) was replaced by the UFTA in 1986 (Stats. 1986, ch. 383, §§ 1, 2, pp.
1589-1590).
13 We assume by this reference to actual fraud that Professor Reppy is
referring to a situation in which the parties contracted to live separate in
property but did not in fact keep their separate property separate.
16
Although Professor Reppy identified the two competing
constructions regarding the applicability of the UFTA to premarital
agreements that the parties in this case present, and stated his
preference for the construction asserted by defendants, we cannot say
that this is dispositive. First, we observe that the Commission did not
recommend -- and the Legislature did not enact -- any statutory
provisions that implement this construction.
Second, several years after Professor Reppy wrote the background
study in 1981, the Legislature enacted the UPAA, which included the
provision that a premarital agreement does not become effective until
marriage. (Stats. 1985, ch. 1315, § 3, p. 4583.) This addition tends to
undermine the construction preferred by Professor Reppy, because (as
Sturm argues) the agreement is not effective until marriage, at which
time it effects a reordering of the parties’ community property interests
in each other’s property acquired during marriage.
Third, we note that Professor Reppy’s interpretation of the law
was not always consistent with interpretations of the law by California
courts. For example, in his section on postnuptial transmutations,
Professor Reppy stated that “[a] postnuptial agreement by H and W
that both would thereafter live separate in property should be viewed as
eliminating the community from their marriage at that moment.
Accordingly, when one of the spouses later is paid earnings during
marriage, they are his or her separate property ab initio; community
status does not attach to the earnings to be eo instante converted into
separate property by a transfer, possibly fraudulent, from the
nonearning spouse of his or her community half interest.” (Reppy,
17
supra, 18 San. Diego L. Rev. at p. 228.) But the court in State Bd. of
Equalization v. Woo, supra, 82 Cal. App. 4th 481, came to a different
conclusion, holding that an agreement entered into during marriage in
which the spouses agree that future earnings by each spouse would be
that spouse’s separate property was subject to the UFTA.
Finally, Professor Reppy’s suggestion that the construction
asserted here by defendants is preferable because the debtor-spouse has
only changed his or her status from single to married and the position of
the creditor has not changed ignores the fact that, with agreements
such as the one in this case, it is not just the debtor-spouse’s marital
status that changes. With provisions such as the joint bank account
provision in the Moyer-Schell agreement, the debtor-spouse is able to
significantly increase his or her standard of living while at the same
time preventing creditors from accessing the funds used for that
increase.
Moreover, the legislative history of the predecessor to Family Code
section 911 -- former section 5120.110, subdivision (b) of the Civil Code
(Stats. 1984, ch. 1671, § 4, p. 6020) -- calls into question the acceptance
of Professor Reppy’s viewpoint. At the time of the professor’s study,
California law protected the non-debtor spouse’s earnings from liability
only for premarital contract debts. (Civ. Code, former § 5120 [Stats.
1969, ch. 1608, § 8, p. 3341].) The Legislature subsequently replaced
former section 5120 with former section 5120.110, which extended the
protection of the non-debtor-spouse’s earnings from liability for any
premarital debt of the other spouse, and provided that those earnings
were protected only so long as they were held in an account in which the
18
debtor-spouse had no right of withdrawal and were not commingled
with other community property except property insignificant in amount.
(Civ. Code, former § 5120.110, subd. (b).) In recommending the
enactment of this provision, the California Law Revision Commission
explained that the earnings of the non-debtor-spouse should be
protected because they are “peculiarly personal.” (Liability of Marital
Property for Debts, supra, 17 Cal. L. Revision Comm’n Reports at p. 18.)
However, the Commission recommended “that the earnings should lose
their protection from liability upon a change in form, [and] . . . should
retain their protection [only] so long as traceable in bank accounts.
This will ensure that substantial amounts of community property are
not immunized from creditors, that the judicial system is not burdened
by extensive tracing requirements, and that earnings will remain
exempt so long as they retain their peculiarly personal character.”
(Ibid.) In other words, the Legislature wanted to protect the non-
debtor-spouse’s earnings from liability for the premarital debts of the
debtor-spouse only to the extent the debtor-spouse did not share in
those earnings.
Although not conclusive, we find the legislative history of the
UFTA and the relevant provisions of the Family Code, like the language
of the statutes, suggest that the UFTA applies to premarital
agreements like the one in this case. We turn to public policy
considerations to determine whether that interpretation should prevail.
3. Policy Considerations Favor the Application of the UFTA to
Premarital Agreements Like the One in This Case
19
Because the statutory language and the legislative history
suggest, but do not conclusively establish, that the Legislature intended
the UFTA to apply in this situation, we turn to the policy considerations
favoring and disfavoring each side’s interpretation of the statutes. On
the whole, those policy considerations favor the interpretation asserted
by Sturm.
In Mejia v. Reed, the Supreme Court declared that “[t]he
California Legislature has a general policy of protecting creditors from
fraudulent transfers, including transfers between spouses” in a case
that addressed whether the UFTA applied to a transfer of one spouse’s
interest in community property as part of dissolution of the marriage.14
(Mejia v. Reed, supra, 31 Cal.4th at p. 668.) In deciding that the
transfer was subject to the UFTA, the Court found that, “[i]n view of
this overall policy of protecting creditors, it is unlikely that the
Legislature intended to grant married couples a one-time-only
opportunity to defraud creditors by including the fraudulent transfer in
an MSA.” (Mejia v. Reed, supra, 31 Cal.4th at p. 668.)
Admittedly, there is a competing policy at play with regard to
premarital agreements that was not present in Mejia. That is, there is
a long-standing policy in favor of marriage in this state. (See In re
14 In the case before it, the husband transferred all of his interest in
jointly-owned real property to wife, and the wife transferred all of her
interest in the husband’s medical practice to the husband in a marriage
settlement agreement. (Mejia v. Reed, supra, 31 Cal.4th at p. 662.) Shortly
thereafter, the husband abandoned his medical practice, was living with his
mother, and had no assets and no income. (Ibid.)
20
Marriage of Dawley, supra, 17 Cal.3d at p. 350; In re Marriage of
Pendleton & Fireman (2000) 24 Cal. 4th 39, 52.) And premarital
agreements facilitate marriage by allowing the parties to “reorder[] . . .
property rights to fit the needs and desires of the couple.” (In re
Marriage of Dawley, supra, 17 Cal.3d at p. 358; see also In re Marriage
of Pendleton & Fireman, supra, 24 Cal.4th at p. 53 [observing that the
availability of an enforceable premarital agreement may encourage
marriage].)
It might be argued that applying the UFTA to a premarital
agreement in which the parties agree that each party’s earnings,
income, and assets acquired during marriage would be that party’s
separate property would discourage marriage in cases, such as the
present one, in which one of the parties has significant debts while the
other party has substantial income. But the Legislature already has
provided protection for the couple in such a case, by enacting Family
Code section 911. As noted, under that statute, the non-debtor-spouse’s
earnings are sheltered from liability for the debtor-spouse’s premarital
debts, so long as those earnings are kept by the non-debtor-spouse in a
separate account (to which the debtor-spouse does not have a right of
withdrawal) and are not commingled with other property in the
community estate. This provision demonstrates, not only an intent to
protect the non-debtor-spouse’s earnings, but also a policy judgment --
an intent to prevent the debtor-spouse from taking advantage of that
protection at the expense of his or her creditors by being allowed access
to the protected funds.
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D. Conclusion
In light of the suggestions raised by the legislative language and
history, and the strong policy -- advanced by both the UFTA and section
911 of the Family Code -- of protecting the rights of creditors from
fraudulent transfers, we conclude that the Legislature must have
intended that UFTA can apply to premarital agreements in which the
prospective spouses agree that each spouse’s earnings, income, and
property acquired during marriage will be that spouse’s separate
property. The policy considerations in favor of applicability of the
UFTA are especially strong in this case, where the agreement provides
that all earnings and income, and property acquired with those
earnings and income, dating back to the date of marriage will become
community property when certain premarital debts no longer are
enforceable, and where the agreement allows the debtor-spouse joint
access to the non-debtor-spouse’s earnings and income that are
deposited in a joint account.
Our conclusion that the UFTA can apply to a premarital
agreement does not mean that it necessarily will apply to invalidate the
agreement here. Whether the UFTA applies in this (or any) case
depends upon whether there was actual or constructive fraud under
Civil Code section 3439.04. That issue is a factual one, and is not before
us in this appeal from a judgment of dismissal following the sustaining
of a demurrer.
DISPOSITION
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The judgment is reversed. Sturm shall recover his costs on
appeal.
CERTIFIED FOR PUBLICATION
WILLHITE, Acting P. J.
We concur:
COLLINS, J.
DUNNING, J.*
*Retired Judge of the Orange County Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
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