Gamache v. Smurro

Gamache v. Smurro (2004-342); 180 Vt. 104; 904 A.2d 1184

2004-342

[Filed 14-Jul-2006]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2006 VT 67

                                No. 2004-342


  Lili Gamache                                   Supreme Court

                                                 On Appeal from
       v.                                        Franklin Family Court


  James Smurro                                   November Term, 2005


  Jane E. Dimotis, J.

  John J. Bergeron and David D. Aman of Bergeron Paradis & Fitzpatrick, LLP,
    Burlington, for  Plaintiff-Appellee.

  Brian K. Valentine of Downs Rachlin Martin PLLC, Burlington, for
   Defendant-Appellant.


  PRESENT:  Reiber, C.J., Dooley, Johnson, Skoglund and Burgess, JJ.

       ¶  1.  DOOLEY, J.   Husband, James Smurro, appeals from a family
  court divorce order that distributed a portion of the equity in a property
  located in California to wife Lili Gamache.  Husband claims that the
  California property is not marital property because wife signed a
  prenuptial agreement prior to their California marriage that waived her
  right to any equity in the property.  We find that the prenuptial agreement
  was modified and superseded by husband and wife's subsequent purchase of
  the entire property, which deeded a 100% undivided interest to both
  parties.  Further, we hold that the family court's distribution of the
  property was equitable and not an abuse of its discretion.  We affirm.
   
       ¶  2.  The parties were married in 1981 and lived together in
  California until July of 1992.  They have one daughter who was born
  in 1990.  In 1992, when their daughter was two years old, the parties separated
  amicably, and wife and daughter moved back to Vermont.  Husband stayed in
  California and eventually moved to Massachusetts.  He frequently saw both
  daughter and wife during the eleven years of separation.  Wife currently
  has a bachelor's degree in Fine Arts, which she obtained before marriage,
  and husband has a bachelor's degree, as well as master's degrees in both
  Science and Engineering and Business Administration, all earned from
  Harvard University before the marriage.  Husband has at times held
  high-level, well-paying positions, but is currently unemployed and seeking
  employment.  Between 1998 and 2003, he earned over $600,000.  


       ¶  3.  Following the separation, wife moved back to St. Albans.  She
  acquired a home, a forty-percent interest in a downtown building, and a
  Subway franchise, the income of which supports her and her daughter.  The
  money to make these purchases apparently came as a gift from her father. 
  Between 1998 and 2003, wife made about $141,000, but at times her monthly
  income has equaled that of husband.  

       ¶  4.  The main issue in this case involves the effect of a prenuptial
  agreement, so we recite the facts related to that agreement in some detail. 
  Prior to the parties' 1981 marriage, husband owned an approximately
  ten-percent interest in a house and surrounding property located in San
  Clemente, California.  The remaining interests were owned by his parents,
  Nicholas and Mary Rose Smurro, his sister, and his two brothers. 
  Apparently, the house was used as a home by husband's father and mother. 
  Prior to their marriage, wife signed a "prenuptial agreement" regarding
  this property, which reads: 

      I Lili Gamache am the spouse-to-be of James Paul Smurro.

      I understand that as of this date, James Paul Smurro has a 10%
    ownership interest in 509 Via Florida, San Clemente and is
    responsible for a proportionate 10% share of all mortgage
    payments, taxes, and insurance on said property, currently
    amounting to $265.00 a month.

      I further understand that James Paul Smurro may buy additional
    shares of said property from his parents or siblings or may
    receive additional shares of said property from his parents or
    siblings as gifts or by will, and that such additional shares,
    however acquired, will require James Paul Smurro to pay the
    percentage of all mortgage payments, taxes, and insurance on said
    property which equals the percentage of ownership that he then
    has.

      . . . .

      I further understand that payments that James Paul Smurro makes to
    said property during our marriage may consist (in all or in part)
    of community property which, under California law, would otherwise
    consist of my one-half share of the same.  I hereby specifically
    renounce any and all rights to any interest in 509 Via Florida,
    including any interest that otherwise would be my one-half share
    of community  property with James Paul Smurro.

      . . . . 

      I freely and willingly sign this Pre-Nuptial Agreement for each
    and all of the following reasons:

      (1)  My love and affection for James Paul Smurro who is to be my
    lawful wedded spouse.

      (2)  My understanding that the purchase of 509 Via Florida (an
    event that occurred before my engagement to James Paul Smurro) was
    contingent upon Nicholas A. Smurro, Sr., Mary Rose Smurro,
    Rosemarie Elizabeth Smurro, James Paul Smurro, Thomas Edward
    Smurro, Nicholas A. Smurro, Jr., and each of them mutually
    agreeing that said property, until completely sold, was to be
    owned only by the above-recited six individuals; that each of the
    four children, including James Paul Smurro, agreed to continue
    payments on said property, whether in a single or marital state;
    that all four children, including James Paul Smurro, agreed that
    upon the contemplation of marriage, that he would secure a
    pre-nuptial agreement from his spouse-to-be which agreement would
    renounce any community property interest, or otherwise, in said
    property; that unless such a pre-nuptial agreement were obtained,
    then James Paul Smurro would forfeit his share of said property at
    fair market value less a prescribed penalty payment.

      (3) That family cooperation and harmony are important to me and my
    renunciation of any and all interest in 509 Via Florida is more
    likely to foster such cooperation and harmony as I join the Smurro
    family as the spouse of James Paul Smurro without the burden of
    financial entanglements.

      WHEREFORE, I LILI GAMACHE HEREBY RENOUNCE, FREELY AND WILLINGLY,
    NOW AND FOREVER, ANY AND ALL INTERESTS THAT I MIGHT OTHERWISE HAVE
    IN THE PROPERTY LOCATED AT 509 VIA FLORIDA, SAN CLEMENTE,
    CALIFORNIA.

  As the agreement reflects, California is a community property state, as
  discussed infra.  At the time of the agreement, the Smurro family did not
  contemplate that they would sell the property to husband and wife.  Husband
  did not sign the agreement.  After wife signed the agreement, the parties
  married.
   
       ¶  5.  Subsequently, in November of 1983, the parties purchased a
  100% interest in the San Clemente property as an investment property. 
  Husband's parents did not like the house and wanted to move to another
  property.  The parties needed a tax shelter for some of their income. 
  Although the evidence does not disclose the source of the purchase money,
  no party disputes it was purchased for valuable consideration. (FN1)  The
  purchase was reflected in a deed to "JAMES PAUL SMURRO  and LILI GAMACHE
  SMURRO, husband and wife as community property as to an undivided 100%
  interest."  The deed was signed by each of the owners of the property,
  including husband.  It states that husband had previously "acquired title
  as a single man," apparently to indicate that, prior to this grant, it was
  not then held by him as community property with wife.  Although the parties
  never lived in the property, wife contributed $40,000 from her earnings to
  support the property from 1983 until 1992.  After the separation, husband
  assumed responsibility for the property and spent over $150,000 on
  management and upkeep.  The parties had an understanding that his
  assumption of responsibility was in lieu of child support for the parties'
  child and maintenance for wife.

       ¶  6.  The prenuptial agreement was introduced late in the trial
  without disclosure in discovery.  Wife testified that she had not seen the
  document in twenty years and that husband had never claimed it affected the
  title to the San Clemente property.  Husband argued that the prenuptial
  agreement was enforceable and meant that wife had no interest in the San
  Clemente property.  Wife argued that the prenuptial agreement was invalid,
  and that, in any event, it did not have the effect of making the San
  Clemente house separate property of husband.  The family court accepted
  wife's arguments.  On the interpretation issue, the court found:

      The Court further concludes that even if this agreement was valid
    when made, it does not bear on the distribution of real estate
    held jointly by the parties as husband and wife.

      . . . .

      The Pre-Nuptial Agreement before the Court is not a comprehensive
    agreement between the parties regarding the disposition of assets
    in the event of divorce.  It relates only to a property interest
    Defendant at one time held as a joint tenant.  Despite the
    language at the end of the Pre-Nuptial Agreement that Plaintiff
    was forever renouncing any interest in the California property,
    other provisions indicate the Agreement was intended to ensure
    that the interest Defendant had as a joint tenant with other
    members of the Smurro family would remain as separate property. 
    The Agreement does not contemplate what actually occurred, that
    Plaintiff and Defendant would buy the entire property together as
    husband and wife.  The Agreement does not address how the parties
    intended to divide the California property if held jointly as
    husband and wife, and the Court will not construe it to bear on
    this issue.

  On appeal, as husband's first ground for reversal, he disputes each of the
  family court's reasons for refusing to give effect to the prenuptial
  agreement and hold that the San Clemente house was husband's separate
  property.

       ¶  7.  We agree with a variation of the court's decision on
  interpretation of the prenuptial agreement and do not reach the question of
  whether the agreement is valid.  In reaching our result, we agree with the
  family court that California law governs the validity and interpretation of
  the prenuptial agreement made in California. (FN2)  See Stalb v. Stalb, 168
  Vt. 235, 241, 719 A.2d 421, 426 (1998) ("[I]f the [prenuptial] contract is
  valid where made, it will be interpreted here according to the law of the
  state of its making, so long as to do so will not violate the public policy
  of the State of Vermont.").   Under either California or Vermont law, the
  prenuptial agreement is interpreted according to rules for construing a
  contract.  See Stalb, 168 Vt. at 241, 719 A.2d  at 426 (concluding an
  "antenuptial agreement is a contract"); In re Marriage of Bonds, 5 P.3d 815, 822 (Cal. 2000) (same).  The intention of the parties at the time the
  contract is formed governs interpretation.  AIU Ins. Co. v. Superior Court,
  799 P.2d 1253, 1264 (Cal. 1990).  Here, the family court found that it was
  not the intention of the contracting parties to address a situation where
  husband and wife jointly purchase the San Clemente property.

       ¶  8.  As noted above, California is a "community property" state,
  which generally means that upon marriage husband and wife form a sort of
  partnership and all property acquired during the marriage by the labor or
  skill of either belongs to both.  11 B.E. Witkin, Summary of California
  Law, Community Property, § 1 at 374 (9th ed. 1990).  Property of married
  persons is either community or separate property.  See Cal. Fam. Code §§
  760, 770 (1994). There is a presumption that property acquired during the
  marriage by either spouse is community property unless acquired by gift or
  inheritance or traceable to a separate property source.  See Haines v.
  Haines, 39 Cal. Rptr. 2d 673, 681 (Cal. Ct. App. 1995).   The presumption
  can be overcome by an agreement of the parties to the contrary.  Id.; Cal.
  Fam. Code § 1500.

       ¶  9.  In this case, there is a basic conflict between the terms of
  the prenuptial agreement, as interpreted by husband, and the later deed
  conveying the title of the property jointly to husband and wife "as
  community property."  Indeed, husband would not have joined in conveying
  the property by the deed he signed unless he intended to convert his
  separate interest in ten percent of the property, along with the other
  ninety percent being conveyed, into a community property interest with
  wife.  Otherwise, the legal effect he alleges here, his sole ownership in
  the property, would have been accomplished if his parents and siblings had
  made a deed of the property solely to him.

       ¶  10.  The proper interpretation of the deed, and the property
  interest it creates, is addressed in part by a California statute,
  California Family Code § 2581, (FN3) which provides:
       
    § 2581.  Division of property; presumptions

      For the purpose of division of property on dissolution of marriage
    or legal separation of the parties, property acquired by the
    parties during  marriage in joint form, including property held in
    tenancy in common, joint tenancy, or tenancy by the entirety, or
    as community property, is presumed to be community property.  This
    presumption is a presumption affecting the burden of proof and may
    be rebutted by either of the following:

      (a) A clear statement in the deed or other documentary evidence of
    title by which the property is acquired that the property is
    separate property and not community property.

      (b) Proof that the parties have made a written agreement that the
    property is separate property.

  Under this statute, the deed to husband and wife in this case must be
  presumed to create community property, unless the prenuptial agreement is
  an "agreement that the property is separate property."
   
       ¶  11.  The California Court of Appeals decided an almost identical
  case in Brown v. Brown, 2002 WL 1010083 at *1 (Cal. Ct. App. 2002), (FN4) 
  holding that a prenuptial agreement was not an agreement that property is
  separate property under § 2581(b).  In Brown, husband and wife entered into
  a prenuptial agreement specifying that husband would retain property owned
  by him before the marriage as separate property after the marriage.  After
  the marriage, however, husband deeded the property to himself and wife as
  joint tenants, apparently to obtain a bank loan.  In the divorce proceeding
  between them, husband argued that the property had not become community
  property because the prenuptial agreement rebutted any presumption arising
  under § 2581.  The court disagreed, holding that "[a] later instrument
  supersedes an earlier one wherever they are inconsistent."  Id. at *3.  It
  went on to hold:

    Here, the premarital agreement contains no express contemplation
    of property to be acquired in the future, thus this is not a case
    in which an earlier premarital agreement applies to later acquired
    property.  The agreement applies to separate property already
    owned by the parties prior to marriage and states it shall
    continue to be held as separate property unless modified by later
    agreement.  The deed was a later agreement.

  Id. (FN5)
   
       ¶  12.  There are four differences between this case and Brown, but
  we judge that overall these differences strengthen wife's case and persuade
  us that the application of § 2581 as discussed in Brown applies here. 
  First, the prenuptial agreement in this case does contemplate
  after-acquired property in the form of incremental increases in husband's
  ownership share.  But, as the family court held, the prenuptial agreement
  did not contemplate a sale of 100% of the property interests to husband and
  wife.  Indeed, the purpose of the prenuptial agreement-"family cooperation
  and harmony"-disappeared once husband and wife purchased the property
  outright.  The agreement stated that each of the owners-husband's parents
  and siblings-had mutually agreed that the "property, until completely sold,
  was to be owned only by the above-recited six individuals." (Emphasis
  added).  As such, the prenuptial agreement had no purpose once the property
  was "completely sold."  On this point, this case and Brown, although
  superficially different, are actually indistinguishable.

       ¶  13.  The second difference is that the prenuptial agreement in
  Brown had a modification clause, and the agreement in this case did not. 
  Again, we do not believe the difference is significant to our holding. 
  Whether or not the prenuptial agreement had a modification clause, the
  parties were free to modify it.  For the exact same reason the Brown court
  found a modification in that case, we find a modification to the prenuptial
  agreement here.  

       ¶  14.  The last two differences between the cases further support
  wife's position.  Third, the Brown court found the deed was a modification
  where the grantor was the spouse who had originally received the property
  as separate property under the prenuptial agreement, as was the case here,
  but the conveyance was to the spouses "as joint tenants."  Id. at *1.  The
  husband had unsuccessfully argued the conveyance was made to obtain a loan
  with the property as collateral and not to affect the marital interests in
  the property between the spouses.  Here, in contrast, the deed conveys the
  property to the spouses as "community property."  Husband has offered no
  explanation for contradicting the explicit grantee language, and is in the
  untenable position of arguing that a deed explicitly conveyed by him to the
  spouses as community property does not create community property interests.  
   
       ¶  15.  Fourth, there was clear evidence in this case that the
  parties acted as if the San Clemente house was community property as the
  deed stated.  The family court found that the parties purchased the
  property after their accountant suggested they do so as a means of limiting
  their joint tax liability, and the parties do not dispute that they filed a
  joint income tax return.  The court found that wife contributed $40,000 to
  the property before the parties separated, some of which included money
  obtained through the tax refunds from their joint tax return.  The court
  also found that the parties had an agreement that husband would not
  contribute to child support for their daughter or maintenance for wife, but would
  manage the California property instead. (FN6)  Finally, wife testified without
  contradiction that husband never mentioned the prenuptial agreement between
  the date on which it was signed and the date of the divorce hearing.  

       ¶  16.  As a leading contracts treatise summarizes:

    Even when the terms of a contract are clear and unambiguous, the
    subsequent conduct of the parties may evidence a modification of
    their contract.  Accordingly, while their conduct may not be used
    to support an interpretation contrary to the plain meaning of the
    contract, it may nonetheless be used to prove the existence of a
    modification of the original contract terms.

  11 S. Williston & R. Lord, A Treatise on the Law of Contracts § 32:14, at
  503 (4th ed. 1999) (citing numerous cases from around the country and
  U.C.C. § 2-208(3)).  The above-described facts are wholly inconsistent with
  husband's position that wife had no property interest in the San Clemente
  property.  It is inexplicable that wife would put money into property in
  which she had no interest, or waive any entitlement to maintenance or child
  support for their child, in return for husband assuming the financial
  obligation for property in which she had no interest.
   
       ¶  17.  The facts bearing on whether the San Clemente property is
  separate or community property are undisputed.  Brown addressed the
  strength of husband's position as follows: "Husband points to the
  earlier-in-time prenuptial agreement, but that agreement is clearly amended
  by the deed absent compelling evidence to the contrary and there is none."  
  2002 WL 1010083, at *5.  On that basis, the court concluded that husband's
  appeal was frivolous.  The appeal here is even weaker than that in Brown.

       ¶  18.  Husband was required to rebut the presumption of community
  property by clear and convincing evidence.  See Weingarten v. Superior Ct.,
  125 Cal. Rptr. 2d 371, 378 (Cal. Ct. App. 2002).  Absent such proof, the
  presumption of community character "was absolute and conclusive."  In re
  Boody's Estate, 45 P. 858, 860 (Cal. 1896).  Although the family court here
  did not make a finding that the prenuptial agreement failed to rebut the
  presumption that the deed created a community property interest in wife,
  the court's finding that the prenuptial agreement was not intended to
  govern a complete sale of the San Clemente property to husband and wife
  implied such a finding.  Accordingly, we affirm the court's conclusion that
  the San Clemente property became community property in 1983 because husband
  failed to rebut the presumption created by § 2581, and the deed of the
  property to husband and wife in 1983 superseded and modified the prenuptial
  agreement.
   
       ¶  19.  Husband's second ground for appeal is that the family court
  abused its discretion in distributing the marital property even if the San
  Clemente property is considered a marital asset.  This is a very narrow
  issue because the parties agreed to the disposition of all other marital
  assets.  In 1994, following the separation, the parties signed agreements
  that specified that any property each received as a gift, and "all
  property, assets and income generated from said property," would be
  considered separate property.  Consistent with the agreement, each party
  waived any claim to property acquired by the other party after the
  separation.  As a result of the waivers, the only remaining property in
  dispute was the San Clemente property and some stock in wife's family
  business corporation.  The parties reached an agreement on distribution of
  the stock, leaving only the San Clemente property in issue.

       ¶  20.  The family court found that the total value of the San
  Clemente property was $930,000, based on an expert's appraisal.  It
  concluded that the property's equity was $688,139, which included the
  proceeds of a new mortgage, $248,139, that was put in escrow by husband
  pending the divorce order. The court considered husband's premarriage
  ten-percent ownership and postseparation expenditure of $150,000 as well as
  wife's preseparation contribution of $40,000.  Ultimately the court awarded
  wife the $248,000 mortgage proceeds, leaving husband the remaining $440,000
  of equity in the house, as well as clear title.  

       ¶  21.  The family court has broad discretion in dividing marital
  property, and we will uphold its decision unless its discretion was abused,
  withheld, or exercised on clearly untenable grounds. Kasser v. Kasser, 2006
  VT 2, ¶ 30, 17 Vt. L. Wk. 4, 895 A.2d 134. The party claiming an abuse of
  discretion bears the burden of showing that the trial court failed to carry
  out its duties.  Id.  Distribution of property is not an exact science and,
  therefore, all that is required is that the distribution be equitable. Id. 
  The statute contains a non-exclusive list of factors that the court may
  consider in reaching its decision.  15 V.S.A. § 751; Semprebon v.
  Semprebon, 157 Vt. 209, 215, 596 A.2d 361, 364 (1991).  
   
       ¶  22.  In claiming that the court abused its discretion in the
  distribution of the value of the San Clemente property, husband argues that
  wife received a larger property distribution share overall, husband put
  much more into the San Clemente property than wife, and wife essentially
  abandoned the property.  Husband asserts that he should therefore receive
  the full value of the property.  In the family court, wife argued that
  husband's contribution to the San Clemente property was made in lieu of
  child support and maintenance and she should receive half its value.

       ¶  23.  The trial court made detailed findings in this case, and
  considered many of the statutory factors.  It found that both parties will
  have an opportunity to acquire future assets.  The court recognized
  husband's more substantial contribution to the California property by
  awarding him a sixty-four-percent share in that property.  It concluded,
  however, that it should award wife some part of the property "to compensate
  her for her original investment and the $40,000 that she contributed to the
  house until 1992."  Thus, she received the remaining thirty-six-percent
  share.  The decision is a compromise between the extreme positions of the
  parties.  We conclude that it fell within the broad discretion of the
  family court.

       Affirmed.



                                       FOR THE COURT:


                                       _______________________________________
                                       Associate Justice


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                                  Footnotes


FN1.  Although husband indicates that the parties did not purchase the
  property for cash, it is undisputed that the property was purchased for
  valuable consideration.  Husband testified that the interests of his
  parents and sister were compensated by allowing them to stay in the house
  rent free until the value of their interests were exhausted.  He further
  testified that he "bought out" the interests of the other siblings.  The
  deed also specifically notes the property was granted to husband and wife
  "for valuable consideration," which husband acknowledged in his testimony.

FN2.  The parties have assumed that California law also determines whether
  real property is separate property of one spouse and, if so, whether a
  court can distribute any interest in that property to the other spouse.  We
  accept those assumptions without analysis.  We note that the assumption
  appears to be consistent with the applicable choice-of-law rule in the
  Restatement.  See Restatement (Second) of Conflict of Laws § 234 (1971). 
  Indeed, the Comment to the section indicates that "questions of the effect
  on an ante-nuptial contract upon the interests of the spouses in the land"
  are governed by the same rule.  See id. Cmt. b.  Although we have not
  decided this question, we have adopted the Restatement rules "for
  choice-of-law questions in both tort and contract cases."  McKinnon v. F.H.
  Morgan & Co., 170 Vt. 422, 423, 750 A.2d 1026, 1028 (2000).

FN3.  Under § 2580(c), this statute applies in this case because this divorce
  proceeding was commenced after January 1, 1984, and no property settlement
  agreements or judgments were signed prior to January 1, 1987.  We recognize
  there is an issue about the validity of the statutory effective dates, but
  the issue is not determinative of our decision.  Prior to 1984, the subject
  of the statutory presumption was controlled by In re Marriage of Lucas, 614 P.2d 285 (Cal. 1980).  The only difference relevant here between Lucas and
  the statute is that the statute requires a written agreement to override
  the presumption, while Lucas does not.  See Papazian v. Papazian, 2003 WL
  21456625 at *3 (Cal. Ct. App. 2003).  Because there is no claim of an oral
  agreement here, the Lucas rule and the statute produce the same result. 
  See id.

FN4.  The decision is unpublished, and Rule 977 of the California Rules of
  Court prohibits courts from citing or relying on opinions not certified for
  publication or ordered published.  Cal. Rules of Court rule 977(a).  Its
  prohibition is not, of course, binding on us.  In any event, we do not rely
  on the decision as a binding statement of California law.  We discuss it
  because we find it persuasive in its application of the governing statute.

FN5.  The Brown holding necessarily involves the transmutation of the
  character of property from separate property to community property as a
  result of the deed.  California Family Code § 852 requires that a
  transmutation be accomplished by a writing containing "an express
  declaration that is made, joined in, consented to, or accepted by the
  spouse whose interest in the property is adversely affected."  Brown held
  that the deed was a writing meeting the requirements of § 852.  Brown, 2002
  WL 1010083, at *3.  We adopt that holding.

FN6.  The trial court found this agreement unconscionable, but noted husband
  did substantially contribute to daughter's education, to both wife and
  daughter's health insurance,  and to wife's IRA, and also bought wife a
  vehicle.  We note the agreement only because it is inconsistent with
  husband's position that wife had no interest in the San Clemente property.