By Gregory W. Herring, CFLS, AAML, IAFL
As baseball fans, family law lawyers and pretty much everyone else knows by now, the ownership of the Los Angeles Dodgers is hotly contested in the marital dissolution proceedings recently filed by Jamie McCourt against Frank McCourt. The Dodgers were acquired by the McCourts during their marriage, which created a presumption that the asset was and is community property. But Frank alleges that the couple entered into a post-marital agreement that gave him sole ownership. He claims that that decision was made by Jamie to insulate herself from any debts or creditor’s claims that might result from purchasing the team, which was then reportedly losing more than $75 million a year.
Having seen Joe Torre and Manny Ramirez help turn the franchise around, Jamie now argues that the post-marital agreement is invalid and that the Dodgers are community property.
The issue of the agreement’s enforceability will be determined at the intersection of policies that allow spouses to freely enter into contracts, but also provide for fiduciary duties between them.
Standing there over seven years ago were Santa Barbara attorney Jill Friedman and her then-estranged husband, Keith. Before discussing the Friedmans, however, a brief review of the foundational law might be helpful:
California has a strong public policy interest in fostering and protecting marriages, and properly negotiated and drafted post-marital agreements can facilitate this. Spouses are thus authorized to freely contract with one another to alter their property rights (Fam. Code, §1500). A post-marital agreement may transmute (1) community property to the separate property of either spouse, (2) separate property of either spouse to community property and (3) separate property of one spouse to separate property of the other spouse (§850). Post-marital agreements that transmute property other than clothing, jewelry and other tangible personal items of nominal value and that were made after 1984 must be made in writing “by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected” (§852, subd. (a); Estate of MacDonald (1990) 51 Cal.3d 262).
The laws concerning post-marital agreements are significantly different from those relating to premarital agreements:
- Post-marital agreements are not governed by California’s version of the Uniform Premarital Agreement Act (Fam. Code, §§1600-1617).
- A party negotiating a post-marital agreement need not be represented by counsel or sign a written waiver of same.
- Parties negotiating a post-marital agreement are presumed to be in a confidential relationship. As such, spouses have fiduciary duties to each other under Family Code section 721.
- A spouse gaining an advantage from a postmarital agreement is subject to a presumption that he exerted undue influence over the other (baseball’s own Barry Bonds was happy to learn earlier this decade that parties negotiating a pre-marital agreement are not subject to that presumption (See Marriage of Bonds (2000) 24 Cal.4th 1, 27-30).
Returning to the Friedmans, their prior case illuminates the difficulties Jamie might encounter in trying to claw back a piece of the Dodgers:
In December 1990 Jill worked as an attorney for a “prestigious” law firm. She met Keith Friedman, who wanted to start a forensic consulting business. According to the Court of Appeal’s recitation of the facts, Jill said that she wanted to keep her law practice as separate property if she married. Keith agreed.
Weeks later, Keith was diagnosed with leukemia. Jill urged him to undergo a bone marrow transplant so that he could be placed on her medical insurance. Shortly thereafter, they married.
Jill, who became the author’s client following her below appeal and whom the author contacted in researching this article, says discussions about dividing property did not occur until after marriage and the discovery of Keith’s illness. Likewise, though the Court of Appeal opinion recited that Jill proposed marriage, Jill says it was Keith who proposed to her.
Within days Keith called his attorney, stating that he wanted to protect Jill from creditors if he did not survive the medical treatment, which was a distinct possibility. The attorney suggested a post-marital agreement, providing that their individual income, business property and debts would be each spouse’s respective separate property. The agreement was rapidly negotiated and completed.
Keith underwent the treatment and fully recovered. Moreover, his business flourished beyond anyone’s dreams. Jill then desired to terminate the agreement, but Keith was not convinced. She eventually filed for divorce.
The agreement’s enforceability was a major preliminary issue that was heard on an interlocutory appeal which resulted in a published opinion from our local division of the Court of Appeal (In re Marriage of Friedman (2002) 100 Cal.App.4th 65). In at least two aspects, it would appear to contravene some of Jamie’s anticipated arguments.
First, the Court’s “observations” emphasized the right of spouses to enter into transmutation contracts with each other:
Where, as here, the agreement is lawful, either party may insist upon adhering to its letter. This protects the reasonable expectations of the parties at the time the bargain was struck. Subsequent events, whether unforeseen or fortuitous, and whether they favor one side or the other, should not dictate how we decide the legal issue here presented (Marriage of Friedman, supra, at 73).