Court Opinion

ID: 9555663
Source: CourtListenerOpinion
Date Created: 2023-08-14 18:05:06.061109+00
Date Added: 2024-06-11T15:41:06.359191
License: Public Domain

Filed 8/14/23 Thompson v. Thompson CA1/1
                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publi-
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dered published for purposes of rule 8.1115.

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      FIRST APPELLATE DISTRICT

                                                    DIVISION ONE

 RICHARD LEE THOMPSON,
           Petitioner and Appellant,
                                                                            A164992
 v.
 RHONA FOGARTY THOMPSON,                                                 (San Mateo County
                                                                         Super. Ct. No.
           Respondent.
                                                                      19FAM01440)

          This is an appeal from an order made after a bifurcated “trial” on two
questions pertaining to the parties’ premarital agreement (PMA). The first is
whether the terms of the PMA “preclude the creation of community property
pursuant to Family Code [s]ection 760 et seq., except as specifically provided
in paragraphs 3, 4, 5, 6, and 7 of the [PMA].” (Italics omitted.) The second is
whether the terms of the PMA excuse the parties’ “respective duties to trace
separate property claims under California community property law.” The
parties treated, and the trial court considered, these two questions as legal
ones of contract interpretation.
          The court concluded the answer to both questions is “NO.” The court
was not asked to decide the character of any particular asset (i.e., if it is
community or separate property), nor did it. Thus, unlike most cases
concerning the scope and import of a PMA, which resolve concrete disputes

                                                                1
about specific assets, the trial court here was asked two broad questions, to
which it provided equally broad answers. We affirm.
                                BACKGROUND1
      Rhona Fogarty Thompson, respondent in this divorce proceeding, filed
a request to bifurcate and set for trial several questions, including questions
concerning the interpretation of the PMA “as to the creation of community
property.” She maintained that she and Richard Lee Thompson (Rick),2
petitioner in this proceeding, have “such different interpretations regarding
the manner in which community property can be created pursuant to that
agreement that [the two are] unable to move forward towards settlement or
final judgment.” Rhona phrased the community property question she
wanted answered as follows: “[D]o the terms of the [PMA] preclude the
creation of community property pursuant to Family Code [s]ection 760 et
seq., except as specifically provided in paragraphs 3, 4, 5, 6, and 7 of the
[PMA].” (Italics omitted.)
      According to Rhona, Rick views the PMA as a waiving all Family Code
provisions pertaining to community property and thus foreclosing the
creation of such property “in any way other than those specified in
paragraphs 3, 4, 5, 6, and 7” of the PMA. She characterized Rick’s view of the
PMA as establishing a “separate property presumption” which, in turn,
excuses him from “tracing requirements.”
      To illustrate, Rhona quoted interrogatory answers Richard provided
wherein he stated, “All assets acquired and investments made during

      1  We provide only a summary of the facts here, and discuss the specific
facts, including the provisions of the PMA, in connection with our discussion
of the issues raised on appeal.
      2   We refer to the parties by their first names for clarity.

                                          2
marriage were made with my and/or Rhona’s premarital assets. As such, the
sources of capital for all assets acquired and investments made during
marriage were either my and/or Rhona’s separate property. In addition, per
paragraph 1 and 2 [of the PMA], all rents, issues, profits and proceeds
thereof, and all appreciation in the value of such assets and investments
during marriage are my and/or Rhona’s separate property. While the [PMA]
creates certain rights of the community to be apportioned. . . , these
provisions do not change the character of the capital that was used to acquire
assets and make investments during marriage, which, by definition, were
separate property per paragraphs 1 and 2.”
      Rhona maintained Rick’s view of the PMA was not supported by its
provisions and that she and Rick “created community property throughout
[their] marriage pursuant to both the express language of the PMA and the
community property law where the [agreement] is silent,” and “[t]o the extent
Rick has any current separate property assets, he must trace them to his
premarital or post-separation efforts.”
      Prior to the court hearing, the parties submitted opening trial briefs,
followed by responding trial briefs. In her briefs, Rhona largely repeated the
assertions she had previously made in support of bifurcating the community
property formation question. She asserted there is no “explicit” waiver of
community property rights in the PMA as required for such waiver and that
the agreement is beset with “numerous conflicting and ambiguous
statements.” She further claimed that, “[f]or the most part,” the PMA
“merely restates well-established Family Code principles and presumptions.”
In his opening and responding trial briefs, Richard disagreed on all points.
      By the time of briefing, the parties considered there to be two
community property questions before the court: (1) whether community

                                          3
property could be created in any way other than as specified in paragraphs 3
to 7 of the PMA, and (2) whether the parties “contract[ed] out of their
respective duties to trace separate property claims” under the Family Code.
      None of the briefs provided concrete examples, based on property
actually in dispute, to illustrate the import of the parties’ respective positions
as to the meaning of the PMA. However, some inkling may be gleaned from
Rhona’s assertion in her opening trial brief that because there was, according
to her, no wholesale waiver of community property rights, the “parties were
free to create community property” through, for example, (1) “[t]aking title to
property in joint name (Family Code[,] § 2581[3]; Probate Code[,] § 5305),” (2)
“[i]ncome earned from, and appreciation on, community property,” (3)
“[f]urther investment of community property,” and (4) “[c]ommingling of
separate and community property.”
      Rick responded to each point. As to the first, he claimed that because
the parties had assertedly waived their rights under the community property
laws, taking title to property jointly did not give rise to any statutory
presumption that the property is community property. As to the second and
third points, Rick asserted the PMA “contains no language providing that the

      3   “Family Code section 2581 is a special presumption at divorce that
‘ “specifically governs real property designated as joint tenancy.” ’
[Citations.] Unlike the general community property presumption, the Family
Code section 2581 presumption cannot be rebutted by tracing; it can only be
rebutted by (1) a clear statement in the deed or other documentary evidence
of title that the property is separate property and not community property, or
(2) proof that the parties have made a written agreement that the property is
separate property.” (In re Brace (2020) 9 Cal.5th 903, 929.) In other words,
“ ‘the affirmative act of specifying a form of [joint] ownership in the
conveyance of title . . . removes such property from the more general
[community property] presumption’ and places it under the specific
community property presumption now stated in Family Code section 2581.”
(Ibid.)

                                        4
rents, issues, profits and proceeds of any community property created
through [the provisions of the PMA expressly specifying how community
property can be created] and the appreciation in value of such community
property occurring during marriage shall be likewise community property.”
As to the fourth point, Rick acknowledged “there could be comingling of
community and separate property funds” but this did not establish a
“presumption that such funds are community” because the parties supposedly
waived all Family Code provisions, including presumptions. Rather, he
maintained the PMA effectively established a presumption that “such funds
are separate property unless the community can prove otherwise.”
(Underscoring omitted.)
      At the hearing, the parties presented no evidence other than the PMA
and devoted their time to legal argument on the questions before the court.
At the close of the hearing, the court ruled from the bench.
      As to the first question, the court found no support in the law, “nor
clear language in the document itself, that would support” Rick’s “separate
property presumption” or “[that] the community property created per the
PMA would not continue to be defined as such under the Family Code,”
unless “proven not to be separate property.” It found Rick’s “argument that
the intent of the parties was to use the community property for living
expenses only to be nonsensical and in direct conflict with the writing itself.”
The court concluded “the language of the PMA . . . supports [its]
characterization as a confirmation agreement,” i.e., that the “parties clearly
intend[ed] to preclude the development of community property in their
respective separate property owned prior to the commencement of marriage.”
As to the provisions of the PMA specifying how community property can be
created, the PMA does not clearly waive community property rights in “any

                                        5
and all subsequent community property created” through those paragraphs.
“Therefore, the community property created pursuant to the PMA remains
community property and is subject to California community property law.”
      As to the second question concerning tracing, the court ruled the PMA
not only “specifically provides” for the commingling of separate and
community property and tracing in one provision, it is “riddled with the
possibility of commingling” in other respects. And as to the latter
potentiality, there is no clear waiver of tracing requirements under the
Family Code.
      The court subsequently filed a written order setting forth its ruling.
                                 DISCUSSION
Interpreting Premarital Agreements
      California law has historically “recognized the power of parties
contemplating a marriage to reach an agreement containing terms at
variance with community property law. Thus in 1850, the Legislature
provided that community property principles shall govern the rights of the
parties ‘unless there is a marriage contract, containing stipulations contrary
thereto.’ (Stats. 1850, ch. 103, § 14, p. 255; see also . . . Barker v. Barker
(1956) 139 Cal.App.2d 206 . . . [‘Parties contemplating marriage may validly
contract as to their property rights, both as to property then owned by them
and as to property, including earnings, which may be acquired by them after
marriage [citations], and the codes provide for such agreements. . . .’]; see also
Fam. Code, § 1500 [‘The property rights of husband and wife prescribed by
statute may be altered by a premarital agreement or other marital property
agreement’].)”4 (In re Marriage of Bonds (2000) 24 Cal.4th 1, 13 (Bonds),

      4All further statutory citations are to the Family Code unless
otherwise indicated.

                                         6
partially superseded by statute on other grounds as stated in In re Marriage
of Cadwell-Faso and Faso (2011) 191 Cal.App.4th 945, 958.)
      A “premarital agreement generally has been considered to be
enforceable as a contract, although when there is proof of fraud, constructive
fraud, duress, or undue influence, the contract is not enforceable. [Citations.]
The rules applicable to the interpretation of contracts have been applied
generally to premarital agreements.” (Bonds, supra, 24 Cal.4th at p. 13.)
Parties negotiating a PMA are not presumed to be in a confidential
relationship that would otherwise give rise to fiduciary duties owed by the
spouses or to the presumption of undue influence when a transaction benefits
one of them. “On the contrary, it is evident that the Uniform [Premarital
Agreement] Act was intended to enhance the enforceability of premarital
agreements, a goal that would be undermined by presuming the existence of
a confidential or fiduciary relationship.” (Id. at p. 29.)
      “In interpreting a written agreement, we ‘look first to the language of
the contract . . . to ascertain its plain meaning or the meaning a layperson
would ordinarily attach to it.’ [Citation.] ‘A contract must be so interpreted
as to give effect to the mutual intention of the parties as it existed at the time
of contracting, so far as the same is ascertainable and lawful.’ (Civ. Code,
§ 1636.) The intent is to be inferred, if possible, solely from the written
provisions of the contract. (Civ. Code, § 1639.) Language in a contract must
be interpreted as a whole and in the circumstances of the case, and cannot be
deemed ambiguous in the abstract.” (In re Marriage of Facter (2013)
212 Cal.App.4th 967, 978 (Facter), italics omitted, superseded by statute on
other grounds as stated in In re Marriage of Clarke and Akel (2018)
19 Cal.App.5th 914, 921–922.) “ ‘[I]t is the objective intent, as evidenced by
the words of the contract, rather than the subjective intent of one of the

                                         7
parties, that controls interpretation.’ [Citation.] The parties’ undisclosed
intent or understanding is irrelevant to contract interpretation.” (Founding
Members of the Newport Beach Country Club v. Newport Beach Country Club,
Inc. (2003) 109 Cal.App.4th 944, 956.)5
      A contractual waiver of a statutory right “ ‘must be clearly apparent in
the contract and its language must be unambiguous and unequivocal, leaving
no room for doubt as to the intention of the parties.[‘ ” (Badie v. Bank of
America (1998) 67 Cal.App.4th 779, 804 (Badie).) “Although an effective
waiver, particularly in a nonadhesive contract, need not expressly state, ‘I
waive my right to a [statutory entitlement]’ or words to that effect, it must
clearly and unambiguously show that the party has agreed to” forego such
entitlement. (Ibid.; accord, In re Marriage of Carpenter (2002)
100 Cal.App.4th 424, 428–429 (Carpenter) [“ ‘There must be “. . . an actual
intention to relinquish [a statutory right] or conduct so inconsistent with the
intent to enforce that right in question as to induce a reasonable belief that it
has been relinquished.” ’ ” Quoting In re Marriage of Perkal (1988)
203 Cal.App.3d 1198, 1203].) “Where it is doubtful whether a party has
waived his or her” statutorily protected rights, “the question should be
resolved in favor of preserving that right.” (Badie, at p. 804.) In Badie, for
example, the court concluded there was “no unambiguous and unequivocal
waiver of the right to a jury trial either in the language of [the bank’s] change

      5 When it is not possible to infer the parties’ intent solely from the
written provisions of the agreement, which is often the case in disputes over
the meaning of a PMA, the court may admit extrinsic evidence if it supports a
meaning to which the language is reasonably susceptible. (In re Marriage of
Thorne & Raccina (2012) 203 Cal.App.4th 492, 503.) Despite Rhona’s
assertion in the trial court that the PMA contains “numerous conflicting and
ambiguous statements,” neither she nor Rick sought to introduce any
extrinsic evidence.

                                        8
of terms provision or in any other part of the original account agreements.”
(Id. at p. 805.) In Carpenter, neither the provisions of the PMA nor the
extrinsic evidence supported finding a waiver of the right to reimbursement.
(Carpenter, at pp. 428–429.)
      Citing to In re Marriage of Moore (1980) 113 Cal.App.3d 22 (Moore),
Rhona contends that in determining whether a party has waived his or rights
to community property, “heightened scrutiny” must be brought to bear and
the “standard of proof for waiver is clear and convincing evidence.” As
subsequent cases, including the Bonds case, reflect, Moore dealt with a
significantly different context, namely a waiver of spousal support in a post-
marital property settlement. (Id. at pp. 25–26.) Post-marriage spouses are
fiduciaries with respect to one another, and therefore a greater degree of
scrutiny pertains to a waiver of statutory rights. In the context of PMAs,
however, the parties are not in a fiduciary relationship, and for that reason,
among others, the Supreme Court in Bonds rejected a heightened “strict
scrutiny” standard to determine whether a party not represented by counsel
voluntarily entered into a PMA. (Bonds, supra, 24 Cal.4th at p. 12.) The
Court of Appeal, in adopting such a standard, had relied on Moore and other
cases dealing with non-PMA contexts. (In re Marriage of Bonds (1999)
71 Cal.App.4th 290, 313, reversed in part by In re Marriage of Bonds (2000)
24 Cal.4th 1, 38.) The high court explained that a “strict scrutiny” standard
is “inconsistent with Family Code section 1615, which governs the
enforceability of premarital agreements.” (Bonds, at p. 12.) Indeed, such a
heightened standard “would have the effect of shifting the burden of proof on
the question of voluntariness to the party seeking enforcement of the
premarital agreement, even though the statute expressly places the burden
upon the party challenging the voluntariness of the agreement. Because the

                                       9
commissioners and our Legislature placed the burden of proof of
involuntariness upon the party challenging a premarital agreement, it seems
obvious that the party seeking enforcement should not be required to prove
that the absence of any factor tending to establish voluntariness did not
render the agreement involuntary—the inevitable result were [the high
court] to adopt the strict scrutiny standard suggested by the Court of
Appeal.” (Id. at p. 24.)
      In short, Rhona has not cited, nor are we aware of, any authority
articulating a “heightened scrutiny” or “clear and convincing” standard of
contract interpretation applicable to PMAs. Rather, the salient inquiry is
whether the PMA clearly and unambiguously waives the parties’ community
or marital property rights.
The Creation of Community Property
      The trial court phrased the first question before it as follows: “Do the
terms of the PMA preclude the creation of community property other than as
provided in paragraphs 3, 4, 5, 6, and 7 of the PMA or, asked another way,
where the PMA specifically provides for the creation of community property,
have the parties waived the application of the Family Code to that property
or its future derivative?” As we have recited, the court answered, “NO.”
      The PMA commences with a number of recitals, including the
following:
      “B. The parties desire to provide for one another by this Agreement to
      assure their financial comfort and security, to assure the integrity of
      their respective properties brought into the marriage by each of them
      and to provide for the creation of a community estate during their
      marriage.

      “C. The parties enter into this marriage because of the love and
      affection each has for the other and neither is interested in acquiring
      any interest in the property of the other earned prior to their marriage.

                                       10
      “D. Each of the parties presently owns property standing in their
      respective names, the nature and extent of which has been fully
      disclosed by each to the other.[6] [¶] . . . [¶]

      “I. The parties desire that all property owned by either of them at the
      time of the marriage and all property coming to them from whatever
      source during the marriage shall be their respective separate property,
      except as specifically provided in this Agreement.

      “J. The parties desire that all earnings and income resulting from their
      personal services, skill, effort and work, shall be their respective sepa-
      rate property, except as specifically provided in this Agreement.

      “K. The parties intend to acquire a residence in the State of California,
      in which case Rick intends to furnish the consideration for the purchase
      of the principal place of residence of the parties and may acquire a sec-
      ondary residence as well, and intend to take title to such residences in
      the names of the parties as their community property, but with the in-
      tention of retaining the right of reimbursement for his contribution to
      the acquisition costs and the costs of capital improvements of such resi-
      dence or residences under the terms of Section 2640 of the California
      Family Code. [¶] . . . [¶]

      “N. The parties intend that the provisions of this Agreement shall be ef-
      fective in determining each part’s rights in his or her own property and
      in one another’s property, including any rights in the estates of one an-
      other at death or their rights in the event of a divorce, the dissolution of
      their marriage or in the event of a legal separation, whether their prop-
      erty rights are ultimately governed by the laws of the California or any
      other jurisdiction in which they may reside.”

      These recitals evidence that the parties had multiple objectives in
entering the PMA: They wanted to ensure that assets and property they
owned prior to the marriage, or received by inheritance or gift during the

      6 Two attached schedules, Schedule A and Schedule B, purport to list
this property. Schedule A lists Richard’s assets as over $80 million.
Schedule B lists Rhona’s assets as over $2 million.

                                       11
marriage, remained their separate property. They wanted to create some
community estate during the marriage. They wanted some, but not all, of
their “earnings and income resulting from their personal services, skill, effort
and work” during the marriage to be their separate property. They intended
their primary residence, and any secondary residence, to be community
property, with Rick having a right of reimbursement for his contribution to
acquisition costs and capital improvements. They intended the provisions of
the PMA to be controlling, regardless of the jurisdiction in which they reside
at the time of death or when their marriage otherwise ends.
      These recitals are followed by 21 enumerated paragraphs.
      Paragraphs 1 and 2 are identical except the first pertains to Rick’s
property, and the second to Rhona’s. The pertinent language of these
paragraphs is as follows:
      “All property, real and personal, of whatsoever nature and wheresoever
      situated, owned by [Rick/Rhona] at the commencement of the marriage,
      or inherited or received by gift during the marriage, all rents, issues,
      profits and proceeds thereof, and all appreciation in the value of such
      property occurring during the marriage, whether or not resulting from
      [his/her] personal services, skill, effort, and work, or from the personal
      services, skill, effort and work of [Rhona/Rick], subject to the provisions
      of Paragraph 5, shall be [his/her] separate property and shall be
      enjoyed by [him/her] and shall be subject to [his/her] disposition as
      [his/her] separate property . . . . [Rhona/Rick] acknowledges that
      [she/he] understands that, except for this Agreement, the appreciation
      with respect to any such property resulting from the personal services,
      skill, effort and work of Rick or Rhona rendered after the marriage
      would be community property or quasi-community property under the
      laws of the State of California, and might be characterized as marital
      property subject to equitable distribution under the laws of many states
      of the United States, but that by this Agreement such appreciation is
      made [his/her] separate property.”

      Rick maintains these paragraphs provide an “expansive definition” of
the parties’ separate property. This is an overstatement.

                                       12
      Paragraphs 1 and 2 effectuate recitals C, D, I, and J, and confirm that
the property each of the parties owned at the time of the marriage, as well as
property either of them inherited or received as a gift during the marriage, is
their separate property. This is consistent with the definition of “separate”
property in the Family Code. (§§ 770, subd. (a), 771.) These paragraphs
further provide as to “such” property—that is, property the parties owned at
the time of the marriage or received by inheritance or gift during the
marriage—that any appreciation resulting from the personal services, skill,
effort and work of either shall also be the separate property of the party who
owned the property at the time of the marriage or received it by inheritance
or gift during the marriage, regardless of any community property or marital
law to the contrary. This treatment of appreciation due to the efforts of the
parties departs from California’s community property law. (See In re
Marriage of Dekker (1993) 17 Cal.App.4th 842, 851 (Dekker) [“Where
community efforts increase the value of a separate property business, it
becomes necessary to quantify the contributions of the separate capital and
community effort to the increase.”].)
      Thus, paragraphs 1 and 2 evidence a waiver of one aspect of
California’s community property law—the appreciation of separate property
through community effort. These paragraphs by no means constitute
wholesale waivers of all community or marital property rights.
      The third paragraph of the PMA states:
      “Except as provided in Paragraphs 1 and 2 and the following
      Paragraphs 5, 6 and 7, all earnings of the parties from their personal
      services, skill, effort, and work shall be the community property of the
      parties.”

      This paragraph effectuates recitals B and J. It is also consistent with
the language of the paragraphs 1 and 2 specifying that any appreciation in

                                        13
property the parties owned at the time of the marriage or received by
inheritance or gift during the marriage, resulting from the personal services,
skill, effort and work of either, shall be the separate property of the party
who owned the property at the time of the marriage or received it by
inheritance or gift during the marriage, regardless of any community
property or marital law to the contrary. We discuss paragraphs 5, 6 and 7,
infra.
         Notably, the third paragraph does not contain language characterizing
as either community or separate property any income generated by
community earnings or any appreciation in the value of assets purchased
with community earnings. More to the point, it does not contain any
language along the lines of that in paragraphs 1 and 2 expressly waiving
community property and marital rights in the appreciation of separate
property through community effort. That is, paragraph 3 does not recite that
the income generated by community earnings or any appreciation in the
value of assets purchased with community earnings is generally considered
community or marital property, but the parties are agreeing to treat it
differently. (Dekker, supra, 17 Cal.App.4th at p. 851 [“It is well settled in
California that income produced by an asset takes on the character of the
asset from which it flows. Thus, rents, issues and profits are community
property if derived from community assets, and separate property if derived
from separate assets.”].)
         This appears to be what the trial court focused on in concluding that
community property can be created in ways other than as specified in
paragraphs 3 through 7 of the PMA. The court’s order states, for example:
         “To infer that a ‘community property waiver’ applies to any and all
         subsequent community property created in paragraphs 3 through 7 is
         not supported by the document itself, which states at B, again, that the

                                         14
      parties’ desire to provide for the creation of a community estate during
      their marriage.”

      “[T]he PMA very clearly set forth the desire and mechanism by which
      to create a community estate during the marriage. Nowhere in the
      document is there any language that would prevent that property as
      being considered in any way other than pursuant to California
      community property law. Therefore, the community property created
      pursuant to the PMA remains community property and is subject to
      California community property law.”

      Rick asserts the court’s order reflects a “complete misunderstanding” of
his position with respect to the PMA and the trial court “confused” the
“concept of ‘community creation’ ” with “how the community created pursuant
to Paragraphs 3 through 7 was used during” the marriage. (Italics added.)
He claims he “never contended” that community income, for example, “could
not be used for the purposes of purchasing other assets, investment,
reinvestment or commingled with separate property,” nor did he ever “argue[]
that the community character of [community property created in accordance
with paragraphs 3 through 7] would be forfeited or transmuted to separate
property if such property was reinvested or used to purchase other assets.”
The trial court did not misunderstand Rick’s position.
      As we have recited, Rhona asserted in her trial brief that paragraphs 3
through 7 do not foreclose the creation of community property by other
means, for example through “[i]ncome earned from, and appreciation on,
community property” and “[f]urther investment of community property.”
Rick’s response to this point in his responding trial brief is telling.
      He first asserted that “[d]espite [the] clear and unambiguous language
of Paragraph [recital] I, Rhona persists in insisting that community property
may be created outside the confines of Paragraphs 3, 4, 5, 6 and 7. She
specifically claims that community property can be created by: (1) ‘taking

                                        15
title to property in joint name (Family Code[,] § 2581; Probate Code[,]
§ 5305)[’]; (2) ‘income earned from, and appreciation on, community property
and further investment of community property’; and (3) ‘commingling of
separate and community property.’ ” He then addressed each point.
      As to income earned from, and appreciation of, community property, he
argued “Paragraph [recital] I of the PMA provides that all property coming to
the parties from whatever source during their marriage ‘shall be their
respective separate property, except as specifically provided for and created
in Paragraphs 3, 4, 5, 6 and 7.’ . . . However, as Rhona acknowledges, the
PMA contains no language providing that the rents, issues, profits and
proceeds of any community property created through Paragraphs 3, 4, 5, 6
and 7 and the appreciation in value of such community property occurring
during marriage shall be likewise community property.” He went on to
assert “[t]he omission discussed above was intentional. . . . Notably,
Paragraphs 1 and 2 purposefully includes [sic] such income and appreciation
in the definition of separate property.” He then maintained that “[e]ven if
inclined to favor community property, the Court is not empowered to add the
missing terms to Paragraphs 3, 4, 5, 6 and 7. While the Court has
jurisdiction to enforce the PMA, it cannot add terms or provisions to the
contract. . . . As the parties deliberately omitted to include the rents, issues,
profits and proceeds and any appreciation in the value of any community
property occurring during the marriage, the Court cannot add these omitted
terms in enforcing the contract and thus no community may be created by
this means.”
      Thus, Rick did not argue that Rhona’s “income earned from, and
appreciation on, community property” example confused the “creation of”
community property and the “use of” community property. Rather, he argued

                                        16
that the PMA expressly declares any income generated by community
earnings or any appreciation in the value of assets purchased with
community earnings is not community property and, instead, is separate
property, and the parties thus waived their community property interests
therein. To say that Rick appears to be back-pedaling on appeal is putting it
charitably.
      Nor did the trial court err in rejecting Rick’s argument that recital I, in
conjunction with paragraphs 1 and 2, constitute a wholesale waiver of all
community and marital property rights, including community property rights
in any income earned from, and appreciation of any property purchased with,
community earnings.
      When the PMA is considered as a whole, as it must be, it is apparent
that recital I is merely that—a recital, and one of many, stating the parties’
multiple purposes in entering into the PMA. While recital I states “[t]he
parties desire that all property owned by either of them at the time of the
marriage and all property coming to them from whatever source during the
marriage shall be their respective separate property,” it goes on to state
“except as specifically provided in this Agreement.” Paragraph 3 is such an
exception. In his appellate briefing, Rick also points to recital J, which states
“[t]he parties desire that all earnings and income resulting from their
personal services, skill, effort and work, shall be their respective separate
property, except as specifically provided in this Agreement.” Again, recital J
is one of many recitals setting forth the parties’ multiple purposes in entering
into the PMA, and paragraph 3 is one of the exceptions heralded by this
recital.
      Paragraphs 1 and 2, as we have discussed, confirm that all property the
parties owned at the outset of the marriage and all property they receive by

                                       17
inheritance or gift during the marriage, is their separate property. These
paragraphs further specify that any appreciation of this property during the
marriage, including appreciation due to the efforts of either party, is also the
separate property of the party who owned the property at the outset of the
marriage or received it by inheritance or gift during the marriage. These two
paragraphs have nothing to do with paragraph 3 and the creation of
community earnings, let alone, any income generated by such community
earnings or appreciation of property procured with such earnings.
      In short, paragraph 3 is silent as to the character of income generated
by community earnings and appreciation of property procured with such
earnings. Nor do recitals I or J, or paragraphs 1 and 2 speak to this issue, let
alone, make unequivocally clear that the parties have chosen to forego any
community or marital property interests in such income or property. (See
Carpenter, supra, 100 Cal.App.4th at p. 428 [where PMA was “silent” as to
reimbursement, “it [could not] have the effect of a waiver” of the parties
statutory right of reimbursement].)
      Accordingly, for this reason alone, the trial court did not err in
answering the broad question put to it—“[D]o the terms of the [PMA]
preclude the creation of community property pursuant to Family Code
[s]ection 760 et seq., except as specifically provided in paragraphs 3, 4, 5, 6,
and 7 of the [PMA]?”—in the negative. (Italics omitted.)
      Although Rick has not emphasized any particular language in
paragraphs 4 through 7 in making his case on appeal, these paragraphs
warrant some mention since they are entirely consistent with the trial court’s
view, and our view, that in executing the PMA the parties waived some, but
not all, of their community and marital property rights.

                                        18
      Paragraph 4 effectuates recital K. It reiterates that the parties intend
to acquire a primary residence and may acquire a secondary residence, that
Rick will fund the purchases, and that the parties will take title in both their
names as community property. It also confirms that Rick retains the right of
reimbursement under section 2640 for acquisition costs and costs of any
capital improvements. It further states that if the parties acquire any
additional residences, “either party or both shall furnish the consideration”
and title will be taken “in such a manner as they then determine and with or
without retaining the right of reimbursement as they shall then determine.”
Plainly, this language does not waive any, let alone all, community or marital
property rights. Rather, it leaves open the possibility the parties might
purchase additional residences with Rick’s and/or Rhona’s separate property
(or with community earnings), leaves open the manner in which they take
title to further agreement (and says nothing about the import of taking title
as joint tenants), and leaves open the question of reimbursement.
      Paragraph 5, like Paragraph 3, effectuates recitals B and J. It states in
pertinent part that “[e]xcept as provided under paragraph 7 hereof,
commencing with the year commencing on January 1, 2000, and continuing
annually thereafter until the termination of the marriage, each of the parties
shall transfer to the community property of the parties, a sum equal to
twenty-five percent (25%) of his or her Total After-Tax Income from his or her
separate property[7] . . . with the intent of transmuting such sum into the
community property of the parties from their respective separate property.
With each year of marriage, the percentage of the Total After-Tax Income of

      7 “Total After-Tax Income” is defined, and the manner in which it is
calculated is set forth, in sub-paragraphs (a) through (i). The particulars of
this complex formula are not material to the issues now before the court.

                                       19
their respective separate property assets shall increase to two and one-half
percent (2.5%) increments until fifty percent (50%) of such Total After-Tax
Income shall be transmuted to community property in the tenth (10th) year
of marriage and every year thereafter.”8     Paragraph 5, like Paragraph 3, is
silent as to the character of any income generated by the community funds
created by transmutation or the appreciation of property procured with such
funds. In short, no language waives any, let alone all, community or marital
property rights.9
      Paragraph 6 elaborates on what “Total After-Tax Income” means in the
year of a dissolution. For that year, such income also includes “the
unrealized appreciation and unrecognized gain of the separate property of the
parties, dating from the date of the marriage to the date of the filing of the
petition for divorce . . . , determined as if all of Rick’s and Rhona’s separate
property were sold and all such gain recognized at the termination of the
marriage.” No language in this paragraph constitutes a wholesale waiver of
community or marital property rights.

      8  Paragraph 8 provides that under certain specified circumstances, and
to a certain specified extent, Rick’s transfers of his separate property will be
reimbursed.
      9  Paragraph 10 states that until “the community property of the
parties exceeds Three Million Dollars ($3,000,000), Rick shall deposit such
sums as are reasonably necessary for the parties’ living expenses into a joint
bank account from which they shall pay their living expense with no rights of
reimbursement.” “Once the community property . . .exceeds Three Million
dollars . . ., all normal living expenses . . . shall be paid from the community
property earnings and the annual addition to community property under the
paragraph 5 adjustment.” “[L]uxuries of life” may be paid for with
“community property only with the agreement of the parties.” The paragraph
additionally states “expenses relating to the upkeep and maintenance of
property owned as separate property shall be paid from the separate property
of the owner.”

                                        20
      Paragraph 7 effectuates recitals B, C, I, and J. It states, “[i]f either
party commences or participates in a new business or start-up company
directly or through any corporation, partnership, or other entity, the initial
capital of such business or start-up company shall be contributed in equal
shares by the parties from their respective separate property, and the
business or start-up company shall be owned by the parties in equal shares
as their community property.” It goes on to state, “[i]f either party declines to
invest in such business or start-up company and if the other participates in
the operation of the new business or start-up as an employee, officer, director
or founder, the party’s investment or contribution from his or her separate
property shall retain its character as separate property with any appreciation
in such investment or contribution being subject to the provisions of
paragraph 5 hereof, but all return on any founder’s stock, stock options, or
restricted stock which are subject to a vesting schedule or buy-back option on
the part of the company based upon the continued services of Rick or Rhona
to the company in whatever capacity or on any stock received as a director,
consultant, advisor or other such position, without consideration other than
the services rendered by Rick or Rhona in that capacity, shall be the
community property of the parties. This paragraph places certain
parameters on the characterization of certain business interests the parties
may acquire during the marriage. But it does not constitute a waiver of all
community or marital property rights.
      Rick maintains paragraphs 14 and 16 also “unmistakably voiced [the
parties’] intention and agreement to opt out and waive any” community
property rights. Paragraph 14 states, “Each of the parties recognizes that the
laws of California affecting the marital rights and interests of persons in the
estates of their spouses may from time to time be changed, limited, or

                                       21
enlarged and that the laws of other states or countries may extend greater or
lesser rights and interests to persons in the estates of their spouses. It is the
intention and agreement of the parties to waive and release all such existing
rights and interests and as they may be amended or enlarged in the future
under the laws of California or as they may exist, be amended or enlarged in
any other jurisdiction which may at the time be applicable.” (Italics added.)
Reading the PMA as a whole, this paragraph plainly works in conjunction
with paragraphs 1 and 2, whereby the parties waived any rights in each
other’s separate property (that is, property they owned at the time of the
marriage or received by inheritance or gift during the marriage), except as
provided in paragraphs 3 through 7. Specifically, paragraph 14 makes clear
that this waiver is not only a waiver of whatever statutory rights existed at
the time the parties executed the PMA, but also of any rights created by
subsequent law.
      Paragraph 16 states in pertinent part, “Each party has had the
opportunity to be represented . . . by counsel of his or her own choosing. . . .
Each of the parties has read this Agreement and is fully aware of the
contents thereof and of its legal effect. The parties acknowledge that they
fully understand that by this Agreement each is giving up substantial
community property rights which each would otherwise acquire during their
marriage and that in spite of that effect, each freely and voluntarily enters
into this Agreement.” This is essentially a boilerplate provision designed to
foreclose any claim either of the parties was coerced or mislead into entering
into the PMA, or that the PMA is unconscionable and unenforceable. Plainly,
this language does not constitute a wholesale waiver of community or marital
property rights.

                                        22
      In his appellant’s closing brief, Rick suggests In re Marriage of Dawley
(1976) 17 Cal.3d 342 (Dawley) and Facter, supra, 212 Cal.App.4th 967
support his claim that the PMA waived all community and marital property
rights. However, neither advances his case.
      The principal issue in Dawley was whether a PMA entered into by
parties who anticipated a marriage of limited duration was void as contrary
to public policy. The court held it was not. (Dawley, supra, 17 Cal.3d at
p. 346.) The court also ruled a boat purchased and maintained solely with
the husband’s separate property was his separate property even though the
loan to purchase the craft had been extended in the names of both parties.
(Id. at pp. 357–358.) The parties presented evidence beyond the PMA
(including that the parties agreed to a “temporary marriage” to spare the wife
a nonmarital pregnancy she feared would lead to her dismissal as a teacher),
and the trial court made specific findings of fact as to the parties’ intent. (Id.
at pp. 347–348, fn. 1.) Here, the record is decidedly different. And while
some provisions of the PMA at issue in Dawley are similar to those in the
PMA at issue here, in many respects the provisions of the PMA here differ,
for example, by including provisions providing for the creation of community
property.
      The principal issue in Facter was whether the trial court erred in
invalidating a PMA in its entirety because it included a waiver of spousal
support. (Facter, supra, 212 Cal.App.4th at p. 978.) The court agreed there
was a waiver of support in light of a paragraph stating, “The provisions of
paragraph 2, supra, [stating wife was to receive a certain amount of cash and
half the profits on the sale of the marital residence] constitutes [wife’s] sole
right to property acquired during the marriage and to support, and replace or
superseded any entitlement to such property that [wife] might otherwise

                                        23
have under law.” (Id. at p. 979, 983.) It also agreed spousal support could
legally be waived, but held the waiver at issue was unconscionable and
therefore unenforceable. (Id. at pp. 980–984.) The court additionally agreed
the spousal waiver could be severed, leaving the remainder of the PMA in
force. (Id. at pp. 985–991.) In discussing severance, the court stated in
passing that one of the paragraphs “effectively constitut[ed] a waiver of
community property rights.” (Id. at p. 989.) That paragraph, set forth in a
four-page document under a heading entitled “ ‘Property Rights,’ ” stated:
“ ‘In consideration of their sharing a home, and of their marriage, and of the
promises contained in this agreement [the parties] agree as follows:
[¶] . . . [¶] 1.None of the property acquired during their marriage shall be
community property.’ ” (Id. at p. 971, fn. 2.) The 16-page PMA here is not
remotely comparable.
      In sum, the PMA at issue here alters some of the community or marital
property principles that would otherwise apply absent the PMA. But no
language can be characterized as an unequivocal, wholesale waiver of
community or marital property rights, particularly with respect to matters on
which the PMA is silent.
Tracing
      The trial court phrased the second question before it as whether “[b]y
entering into the PMA, did the parties contract out of their respective duties
to trace separate property claims under the California community property
law? Its answer, again, was “NO.”
      The court explained its answer as follows:
      “The PMA provides not only for the creation of community property and
      separate property, it specifically provides for its commingling.
      Although paragraph 4 specifically calls out the obligation to trace by
      referencing Family Code [s]ection 2640, the PMA is riddled with the
      possibility of commingling the parties’ separate and community

                                      24
      property. The fact that Family Code [s]ection 2640 was not referenced
      in each place that the PMA could result in commingling did not amount
      to the parties waiving or contracting out of that obligation. . . . [N]or
      does the language of the PMA support the argument that the parties
      waived all provisions of the Family Code regarding the obligation of
      tracing.”

      “Tracing” is used to determine the character of property acquired
during a marriage and, more specifically, whether the property was acquired
with or generated by separate or community property, or both. (See generally
In re Marriage of Ciprari (2019) 32 Cal.App.5th 83, 90–91 (Ciprari).) Parties
have a great deal of latitude in the methodology used to trace the source of
assets. Traditionally, parties have often used “direct tracing”10 or
“exhaustion tracing.”11 However, as the court discussed in Ciprari, parties
are not limited to these two methods. To the contrary, “trial courts have the
flexibility to consider any credible evidence and to evaluate alternative
tracing methods to determine whether the proponent of the tracing carries
his or her burden of proof. The tracing method may vary depending on the

      10 “ ‘Direct tracing’ can be used to demonstrate a spouse’s separate
property was used to purchase an asset, even though the purchase is made
with funds from a commingled account containing both separate and
community property. It requires (a) documentary proof that sufficient
separate property funds were available in the account at the time of purchase
and (b) proof that the spouse making the purchase intended to use separate,
rather than community, funds.” (Ciprari, supra, 32 Cal.App.5th at pp. 95–
96.)
      11 Exhaustion tracing “attempts to trace a payment or purchase from a
commingled mass to separate property funds by process of elimination; i.e.,
by showing that—because all community property funds were exhausted at
the time the purchase or payment at issue was made—separate property
funds necessarily must have been used. [Citation.] This approach presumes
that available community property funds are used for family expenses before
separate property funds are used for that purpose.” (Ciprari, supra,
32 Cal.App.5th at p. 96.)

                                       25
facts. Thus, trial courts are free to consider and credit reasonable, well-
supported, and nonspeculative expert testimony, when determining whether
the proponent has successfully traced commingled assets to a separate
property source.”12 (Ciprari, at p. 97.)
      Since we agree with the trial court that the parties could create
community property by means other than as set forth in paragraphs 3
through 7 of the PMA—for example, by investment of, or the purchase of
property with, community earnings created pursuant to paragraph 3—it is
certainly possible, as the trial court recognized, that the parties may dispute
whether a particular investment or property was procured with community
and/or with separate property. The only feasible way the trial court can
resolve such a dispute is with tracing evidence.
      Rick acknowledges he must present tracing evidence in connection with
reimbursement for the purchase of the parties’ primary and secondary
residences, and capital improvements thereof, since paragraph 5 makes
express reference to section 2640.13 He asserts, however, that neither he nor
Rhona has any other obligation to conduct what he calls “Family Law
Tracing” because “the parties explicitly waived all their existing rights and
interests under California community property law,” and “[i]ncluded in such
waiver is a waiver of the community property presumption under Family

      12 Accordingly, Rick’s complaint that there are significant constraints
on the kinds of evidence that can be presented to support tracing, making
tracing unduly burdensome, is unfounded.
      13  Section 2640 states in pertinent part, “unless a party has made a
written waiver of the right to reimbursement or has signed a writing that has
the effect of a waiver, the party shall be reimbursed for the party’s contribu-
tions to the acquisition of property of the community property estate to the
extent the party traces the contributions to a separate property source.”
(§ 2640, subd. (b).)

                                       26
Code section 760.” He maintains “there is not a single term in the PMA
which specifically provides that the . . . section 760 community property
presumption or any community property presumption applies to commingled
accounts and/or assets acquired during the marriage.”
      To begin with, Rick has it backwards. PMAs are not required to
expressly confirm statutory community or marital property rights, including
the presumptions that pertain thereto. To the contrary, PMAs are a means
to contract out of these rights as to some or all of the parties’ property, and to
do so, they must clearly and unequivocally express such intent. If they do so,
the waiver encompasses, of course, statutory presumptions pertinent to such
property. (See Dawley, supra, 17 Cal.3d at p. 357 [“the presumptions of the
Family Law Act do not govern the status of marital property when ‘there is a
marriage settlement containing stipulations contrary thereto’ ”].)
      Here, however, the parties did not, contrary to Rick’s claim, “contract[]
out of the entire system of California community property” and thereby
embrace a “default rule that all property” is the separate property of one or
the other of the two parties. As we have discussed, the parties waived their
community and marital property rights only as to some assets, leaving open
the possibility, indeed the likelihood, that characterization issues would arise
on divorce or death. Nowhere in the PMA is there any provision that clearly
and unequivocally waives their respective obligations to present legally
sufficient evidence to enable the court to rule on the character of any asset or
property as to which there is a dispute.
                                DISPOSITION
      The order after hearing dated February 22, 2022, regarding the
interpretation of the PMA, is AFFIRMED. Respondent to recover costs on
appeal.

                                        27
                                         _________________________
                                         Banke, J.

We concur:

_________________________
Margulies, Acting P.J.

_________________________
Bowen, J.*

**Judge of the Contra Costa County Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.

A164992, Thompson v. Thompson

                                    28