Facts: The parties divorced after seven years of marriage. Prior to their marriage, they executed a Prenuptial Agreement. In the Prenuptial Agreement, the parties disclosed their respective assets and liabilities and outlined the division of property in the event of divorce. Namely, the Prenuptial Agreement provided that each party would retain his or her own separate property including retirement accounts. Husband argued Wife’s the retirement account was subject to equitable division because Wife’s employment income constituted marital property and she contributed substantial amounts of her income into the retirement account. The trial court found the Prenuptial Agreement was ambiguous because its definition of “separate property” did not include a party’s income during the marriage. Even so, the trial court found Wife was entitled to receive her retirement account as her separate property. Husband appealed.
On Appeal: The Court of Appeals reversed the trial court’s reasoning but affirmed the outcome.
When interpreting prenuptial agreements, the courts employ the same principles of construction that are applicable to other written contracts. The cardinal rule of contract interpretation is that the court must attempt to ascertain and give effect to the intention of the parties. In attempting to ascertain the intent of the parties, the court must examine the language of the contract, giving each word its usual, natural, and ordinary meaning. The court’s initial task in construing the contract is to determine whether the language is ambiguous. Where the language of a contract is clear and unambiguous, its literal meaning controls the outcome of the dispute. On the other hand, a contract is ambiguous if its meaning is uncertain and is susceptible to more than one reasonable interpretation.
Sections Four and Five of the Prenuptial Agreement stated:
4. Separate Property of the Parties. The parties hereto agree that each party shall retain, free from any and all claims whatsoever kind or nature of the other party, as his/her separate estate, the following property, hereinafter collectively referred to as “Separate Property”:
(a) Any and all property, whether real, personal, or mixed, acquired by such party hereto by purchase, exchange, gift, bequest, devise or descent and/or with his or her Separate Property, as defined by this paragraph 5 of this Agreement; and
(b) In addition and not in limitation of the terms of paragraph (a), all property set forth on Exhibit “A” attached hereto shall be the Separate Property of [Wife] and all property set forth on Exhibit “B”, attached hereto, shall be the Separate Property of [Husband]; and,
(c) In addition and not in limitation of the terms of paragraphs (a) and (b), any and all appreciation in the value of Separate Property of such party as set forth on the respective exhibits attached hereto and as defined in this paragraph 4, whether by reason of interest earned on such Property, whether passive or otherwise, appreciation of the value of such Separate Property for whatever reason, and/or the sale of exchange or substitution of any kind/or all items of Separate Property. (e.g. Any and all appreciation in the value of [Wife’s] Separate Property set forth on Exhibit “A”, including but not limited to, income from such Separate Property, and any Separate Property defined in paragraph (a) above shall be and remain the sole and absolute property of [Wife].)
5. After Acquired Property. The parties agree that during the period subsequent to the date of their marriage, all property, whether real, personal or mixed, acquired by them, shall be the Separate Property as defined in paragraph 4 hereof, of the party who received by gift, bequest, devise or descent such property and/or whose Separate Property was used to purchase or acquire such property, and/or whose labor or services resulted in the funds for the payment for, or acquisition of, such real, personal or mixed property, unless otherwise agreed to in writing by and between the parties. Notwithstanding any legal presumptions to the contrary, only property acquired and titled, in writing, whether or not required by applicable law, in the joint names of the parties as Tenants by the Entireties shall be defined as “After Acquired Property.” . . . .
Section 23 of the Prenuptial Agreement also set out that Husband waived his interest in Wife’s retirement accounts by relinquishing “any and all interest which he may now or hereafter have or accrue in and to [Wife’s] Basic Benefit Plan and/or Thrift Savings Plan.. . .”
Husband argued the trial court correctly found Section Five of the Prenuptial Agreement was ambiguous and did not include employment income within the definition of “Separate Property.” Thus, Husband contends that Wife’s income contributions to her retirement account are marital property subject to equitable division.
Wife argued a straightforward reading of Sections Four and Five established that all property acquired after the marriage was to remain separate property unless the property was jointly titled in both parties’ names.
After reading the Prenuptial Agreement and reviewing the record, we find that the Agreement’s language is clear and unambiguous. The Agreement outlines that the parties intended to maintain their own separate property throughout the marriage unless they agreed to specifically designate property as “After Acquired Property” or marital property in writing. We further find that Wife’s income is included in the definition of “Separate Property.” Exhibit “A” that was attached to the Prenuptial Agreement lists Wife’s income as her separate property. Under the provisions of the Agreement, Wife would maintain her separate property throughout the duration of the marriage including her employment income. The trial court erred in finding that Wife’s income was not covered by the Agreement and deeming it ambiguous. Therefore, we reverse the trial court’s finding in that regard. Nevertheless, in spite of finding the Agreement to be ambiguous, the trial court properly awarded Wife’s retirement accounts to her. As the trial court noted, the Agreement provides that the parties would retain their respective retirement accounts. Husband’s contentions that Wife’s contributions to her retirement account constitute martial property cannot prevail over a straightforward reading of the Prenuptial Agreement. Accordingly, we affirm the trial court’s award of Wife’s retirement accounts as her separate property.
Information provided by K.O. Herston, Tennessee Divorce Lawyer.