Stanford Law School - Robert Crown Law Library

Filed 8/14/03

IN THE SUPREME COURT OF CALIFORNIA

RHINA MEJIA,
Plaintiff and Appellant,
S106586
v.
) Ct.App.
6
H020771
DANILO REED et al.,
Santa Clara County
Defendants and Respondents. )
Super. Ct. No. CV 769375

Danilo Reed (Husband) had an extramarital relationship with plaintiff
Rhina Mejia that led to the birth of a child. In a later divorce proceeding, Husband
and Violeta Reed (Wife) entered into a marital settlement agreement (MSA) under
which Husband transferred all his interest in jointly held real property to Wife.
Plaintiff claimed that the purpose of this transfer was to prevent her from
collecting child support, and she asked the court to impose a lien on the real
property. The trial court rejected her contentions and entered summary judgment
for Husband.
The Court of Appeal reversed the trial court, holding that a transfer of real
property under an MSA could be found invalid under the Uniform Fraudulent
Transfer Act (UFTA) (Civ. Code, §§ 3439-3439.12). Because that holding
conflicted with another Court of Appeal decision, Gagan v. Gouyd (1999) 73
Cal.App.4th 835, we granted review. We conclude that the Court of Appeal in
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this case correctly held that the provisions of the UFTA apply to marital settlement
agreements.
That conclusion requires us to address an additional issue. Under the UFTA,
a transfer can be invalid either because of actual fraud (Civ. Code, § 3439.04, subd.
(a)) or constructive fraud (id., §§ 3439.04, subd. (b), 3439.05); one form of
constructive fraud is a transfer by a debtor, without receiving equivalent value in
return, if the debtor is insolvent at the time of transfer or rendered insolvent by the
transfer (§ 3439.05). The Court of Appeal held that there were triable issues of fact
relating to both actual fraud and constructive fraud. Husband sought review only of
the holding relating to constructive fraud.1 That holding rested on the proposition
that a person is insolvent under section 3439.05 if the person’s assets are less than
the discounted cumulative value of future child support obligations. We disagree,
and hold that the discounted value of future child support, because it is generally
paid from future income rather than current assets, should not be considered in
determining solvency under section 3439.05. We therefore reverse the judgment of
the Court of Appeal and remand the case for further proceedings.
I. FACTS AND PROCEDURAL HISTORY
The facts are taken from the Court of Appeal opinion. Husband and
Wife were married in 1970. In 1994, Husband had an extramarital relationship
with plaintiff. Their daughter was born in February 1995. In May 1995, Wife
petitioned for dissolution of her marriage to Husband. They entered into an
MSA under which Husband conveyed all his interest in the couple’s real estate
to Wife, and she conveyed her interest in Husband’s medical practice to him.
The MSA provided that Husband would be solely responsible for his

1
Wife joined in Husband’s petition for review and brief on the merits. She
did not raise any separate arguments.
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extramarital child support obligation. The MSA was merged into a judgment
of dissolution entered in August 1995.
By June 1997, Husband had abandoned his medical practice. He now lives
with his mother. He has no assets and little income.
Plaintiff, who had a pending paternity suit against Husband, filed a lis
pendens against the real property awarded Wife under the MSA. The trial court in
the paternity action awarded plaintiff child support of $750 per month, but it ruled
that plaintiff had no standing to challenge the transfer of property under the MSA.
The court later increased child support to $953 per month plus $200 per month for
day care, or a monthly total of $1153.
Plaintiff then filed this action, asserting that the MSA was a fraudulent
transfer by Husband to Wife, intended to hinder plaintiff in her collection of future
child support. The complaint sought to establish a lien upon the real property
transferred under the MSA. (See Civ. Code, § 3439.07 [remedies of defrauded
creditor].) Husband moved for summary judgment. His supporting papers did not
expressly deny fraudulent intent, instead relying on plaintiff’s failure to provide
direct evidence of intent to defraud. Husband further declared that the value of his
practice at the date of separation was $600,000, and consequently that the
community property had been divided equally.
In response, plaintiff asserted that the transfer was accompanied by certain
“badges of fraud” from which the trier of fact could infer intent to defraud. She
presented an expert evaluation appraising the fair market value of Husband’s
medical practice at $100,000. Another expert calculated the discounted value of
future child support at $164,829 to $205,975 on the assumption that child support,
based on Husband’s earning potential, would be set at $1146 to $1482 monthly
(plus $200 per month for child care expenses). Under the lowest of these figures,
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the discounted value of future child support would still exceed the appraised value
of Husband’s practice.
The trial court assumed that the UFTA applied to the MSA, but it granted
Husband’s summary judgment motion on the grounds that no evidence was
presented of actual intent to defraud, and the transfer did not render Husband
insolvent. The Court of Appeal reversed, holding that although the UFTA applies
to marital settlement agreements, triable issues of fact precluded summary
judgment.

II. THE UNIFORM FRAUDULENT TRANSFER ACT APPLIES TO TRANSFERS
UNDER MARITAL SETTLEMENT AGREEMENTS
The UFTA permits defrauded creditors to reach property in the hands of a
transferee. The Family Code, in section 916, protects property transferred to a
spouse incident to divorce from the debts of the other spouse. Neither statute
expressly refers to the other. Our task is to harmonize the two statutes. (DeVita v.
County of Napa (1995) 9 Cal.4th 763, 778-779.)
“Under well-established rules of statutory construction, we must ascertain
the intent of the drafters so as to effectuate the purpose of the law. [Citation.]
Because the statutory language is generally the most reliable indicator of
legislative intent, we first examine the words themselves, giving them their usual
and ordinary meaning and construing them in context.” (Esberg v. Union Oil Co.
(2002) 28 Cal.4th 262, 268.) “[E]very statute should be construed with reference
to the whole system of law of which it is a part, so that all may be harmonized and
have effect.” (Moore v. Panish (1982) 32 Cal.3d 535, 541.) “Where as here two
codes are to be construed, they ‘must be regarded as blending into each other and
forming a single statute.’ [Citation.] Accordingly, they ‘must be read together
and so construed as to give effect, when possible, to all the provisions thereof.’
[Citation.]” (Tripp v. Swoap (1976) 17 Cal.3d 671, 679.)
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When the plain meaning of the statutory text is insufficient to resolve the
question of its interpretation, the courts may turn to rules or maxims of
construction “which serve as aids in the sense that they express familiar insights
about conventional language usage.” (2A Singer, Statutes and Statutory
Construction (6th ed. 2000) p. 107.) Courts also look to the legislative history of
the enactment. “Both the legislative history of the statute and the wider historical
circumstances of its enactment may be considered in ascertaining the legislative
intent.” (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d
1379, 1387.) Finally, the court may consider the impact of an interpretation on
public policy, for “[w]here uncertainty exists consideration should be given to the
consequences that will flow from a particular interpretation.” (Ibid.)
Following these principles of statutory construction, we turn first to the text
of the UFTA and the Family Code.
A. The Statutory Texts
1. The Uniform Fraudulent Transfer Act

The UFTA was enacted in 1986; it is the most recent in a line of statutes
dating to the reign of Queen Elizabeth I. “This Act, like its predecessor and the
Statute of 13 Elizabeth, declares rights and provides remedies for unsecured
creditors against transfers that impede them in the collection of their claims.”
(Legis. Com. com., 12A West’s Ann. Civ. Code (1997 ed.) foll. § 3439.01,
p. 272.) Under the UFTA, a transfer is fraudulent, both as to present and future
creditors, if it is made “[w]ith actual intent to hinder, delay, or defraud any
creditor of the debtor.” (Civ. Code, § 3439.04, subd. (a).) Even without actual
fraudulent intent, a transfer may be fraudulent as to present creditors if the debtor
did not receive “a reasonably equivalent value in exchange for the transfer” and
“the debtor was insolvent at that time or the debtor became insolvent as a result of
the transfer or obligation.” (Civ. Code, § 3439.05.)
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On its face, the UFTA applies to all transfers. Civil Code, section
§ 3439.01, subdivision (i) defines “[t]ransfer” as “every mode, direct or indirect,
absolute or conditional, voluntary or involuntary, of disposing of or parting with
an asset or an interest in an asset . . . .” The UFTA excepts only certain transfers
resulting from lease terminations or lien enforcement. (Civ. Code, § 3439.08,
subd. (e).) Thus, the UFTA on its face encompasses transfers made under an
MSA. Consequently, most decisions of other states construing parallel provisions
of the UFTA hold that it does apply to marital property transfers, including those
in connection with divorce. (See, e.g., Scholes v. Lehmann (7th Cir. 1995) 56 F.3d
750, 758-759 [applying Ill. law]; Kardynalski v. Fisher (Ill.App.Ct. 1985) 482
N.E.2d 117, 121-122; Dowell v. Dennis (Okla.Ct.App. 2000) 998 P.2d 206, 209,
212-213; Greeninger v. Cromwell (Or.Ct.App. 1996) 915 P.2d 479, 482; see also
Federal Deposit Ins. Co. v. Malin (2d Cir. 1986) 802 F.2d 12, 18 [under New
York law, UFTA applies but ex-wife was good faith purchaser for value]; but see
Britt v. Damson (9th Cir. 1964) 334 F.2d 896, 901 [Wash. law]; Witbart v. Witbart
(Mont. 1983) 666 P.2d 1217, 1219.) Civil Code section 3439.11 provides
expressly that the UFTA “shall be applied and construed to effectuate its general
purpose to make uniform the law . . . among states enacting it.”
Husband here points to section 10 of the UFTA (Civ. Code, § 3439.10),
which provides: “Unless displaced by the provisions of this chapter, the principles
of law and equity, including the law merchant and the law relating to principal and
agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake,
insolvency, or other validating or invalidating cause, supplement its provisions.”
He argues that Family Code section 916 is a law that “supplement[s]” the
provisions of the UFTA by, in effect, establishing an exception to its provisions.
But to “supplement” the UFTA means to provide something additional to the law,
not to narrow or nullify the law. This point is illustrated in Monastra v. Konica
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Business Machines, U.S.A., Inc. (1996) 43 Cal.App.4th 1628. The defendants
there argued that compliance with the Bulk Sales Act (Cal. U. Com. Code, § 6101
et seq.) immunized a transfer from attack under the UFTA. The Court of Appeal
disagreed, concluding that the protections given creditors under the Bulk Sales
Law supplemented, that is, added to, the protections of the UFTA. (Monastra v.
Konica Business Machines, U.S.A., Inc., supra, at pp. 1639-1640.)
2. The Family Code

Before 1984, a spouse who received community property after a dissolution
of marriage was liable for the community debts incurred by the other spouse
during the marriage. (Dawes v. Rich (1997) 60 Cal.App.4th 24, 28; see Packard v.
Arellanes (1861) 17 Cal. 525; Frankel v. Boyd (1895) 106 Cal. 608, 612-615.)
Thus, a creditor of one spouse could often reach any property transferred to the
other without resorting to an action to set aside a fraudulent transfer.
Nevertheless, that remedy was available when needed to invalidate a fraudulent
transfer made under an MSA. (See, e.g., McKnight v. Superior Court (1985) 170
Cal.App.3d 291, 295-296, 299.)
In 1984, however, the Legislature substantially changed the postmarital
liability of spouses. “The Legislature determined that, under most circumstances,
after a marriage has ended, it is unwise to continue the liability of spouses for
community debts incurred by former spouses.” (Dawes v. Rich, supra, 60
Cal.App.4th at p. 30.) It enacted former Civil Code section 5120.160, which
provided in pertinent part that, upon the dissolution of the marriage, “the property
received by [a married] person in the division is not liable for a debt incurred by
the person’s spouse before or during marriage, and the person is not personally
liable for the debt, unless the debt was assigned for payment by the person in the
division of the property.” (Stats. 1984, ch. 1671, § 9, p. 6021.) When the Family
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Code was enacted in 1992, Civil Code section 5120.160 became Family Code
section 916.
When the Legislature enacted former Civil Code section 5120.160, it
contemplated that “ ‘[i]n allocating the debts to the parties, the court in the
dissolution proceeding should take into account the rights of creditors so there will
be available sufficient property to satisfy the debt by the person to whom the debt
is assigned, provided the net division is equal.’ ” (Lezine v. Security Pacific Fin.
Services, Inc. (1996) 14 Cal.4th 56, 75, quoting Recommendation Relating to
Liability of Marital Property for Debts (Jan. 1983) 17 Cal. Law Revision Com.
Rep. (1984) pp. 23-24, fn. omitted.) Family Code section 2550, however,
provides: “Except upon the written agreement of the parties, or on oral stipulation
of the parties in open court, or as otherwise provided in this division, in a
proceeding for dissolution of marriage or for legal separation of the parties, the
court shall . . . divide the community estate of the parties equally.” (Italics added.)
Whenever, as in this case, the parties agree upon the property division, no law
requires them to divide the property equally, and the court does not scrutinize the
MSA to ensure that it sets out an equal division. (In re Marriage of Cream (1993)
13 Cal.App.4th 81, 91.)
The only statutory exception to Family Code section 916’s grant of
immunity from liability is a provision that preserves the liability of property
subject to a preexisting lien (Fam. Code, § 916, subd. (a)(2)); the statute does not
mention fraudulent transfers. Thus, on its face, Family Code section 916 would
appear to protect transfers of marital property incident to divorce from being set
aside under the UFTA. We note, however, that section 916 states that it applies
“[n]otwithstanding any other provision of this chapter.” (Similar language
appeared in former Civil Code section 5120.160.) This language indicates that
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section 916 may be subordinate to other statutes, such as the UFTA, not included
in the same chapter of the Family Code as section 916.
B. Canons of Statutory Construction
The parties call our attention to familiar canons of statutory interpretation,
but these offer no assistance in resolving the apparent conflict between the statutes
at issue here. Husband argues that the principle that specific provisions take
precedence over general provisions (see Code Civ. Proc., § 1859; Collection
Bureau of San Jose v. Rumsey (2000) 24 Cal.4th 301, 310) is controlling. He
asserts that Family Code section 916, because it discusses only transfers in an
MSA, is more specific than the UFTA, which regulates all transactions, and
should therefore prevail over the UFTA. But one could as easily describe the
UFTA as pertaining to only fraudulent transactions, and thus at least as specific as
section 916, which concerns all marital settlement transactions. Neither statute
appears to be significantly more specific than the other.
Plaintiff bases her argument on the adage of expressio unis est exclusio
alterius – the expression of some things implies the exclusion of things not
expressed. She argues that the Legislature, when it enacted the UFTA, knew how
to make a specific exemption for transfers under an MSA – since it made
exceptions for some other transfers – and she asks us to infer from the absence of
an exception for marital settlements that the Legislature must have intended the
UFTA to apply to marital settlement transactions. But one can equally argue that
the Legislature, when it enacted former Civil Code section 5120.160 and later
recodified that provision as Family Code section 916, knew how to make an
exception for fraudulent transfers, but chose not to do so. Both the UFTA and the
Family Code govern discrete subject areas, and the Legislature’s failure to
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legislate expressly with respect to the rare instance in which they overlap does not
suggest any legislative intent as to which should prevail.
C. Legislative History
Husband argues that the history of former Civil Code section 5120.160 (the
predecessor to Family Code section 916) shows that the Legislature did not intend
to allow creditors to challenge an MSA. In 1984, when the Legislature was
considering former section 5120.160, Carol Bruch, a law professor at the
University of California at Davis, proposed that the new law provide for notice to
creditors and grant them a right to intervene in the dissolution proceedings. In
connection with this proposal, she suggested amending the measure to provide that
the section would not bar recovery by a creditor who was not notified, or did not
approve the proposed marital settlement, and “successfully challenges the property
division as a fraudulent conveyance in a motion to set aside the property division
filed within 3 years after entry of the judgment dividing the property.” (Carol
Bruch, U.C. Davis Law School, Suggested Amendments to Assem. Bill 1460
(1983-1984 Reg. Sess.) Mar. 14, 1984.) The Law Revision Commission rejected
Professor Bruch’s suggested amendments, saying: “Carol proposes adoption of a
‘bankruptcy’ or ‘probate’ type scheme for imposing liability after dissolution of
marriage, involving notice and an opportunity to appear for creditors, and
fraudulent conveyance standards. While this scheme is theoretically interesting,
the Commission rejected it because of the extensive procedures involved. It
would transform simple divorce cases into elaborate proceedings involving many
parties. We are unwilling to burden our bill with this; Carol can prepare and
sponsor her own bill next session to adopt this sort of scheme if she is able to
perfect it.” (Nathaniel Sterling, Cal. Law Revision Com., letter to Assemblyman
Alistair McAllister, Mar. 30, 1984, p. 2.) This historical account could support an
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inference that the Legislature did not intend to permit creditors to attack an MSA,
as Husband contends, but it could also be viewed more narrowly as suggesting
only a determination that creditors should not have standing to raise their claims in
the dissolution proceeding itself.
The legislative history of the UFTA equally offers a weak inference in
support of plaintiff’s position. In 1986, when the Legislature considered the
UFTA, the Business Law Section of the California State Bar reported to the
Legislature: “Serious consideration needs to be given to the effect of this statute
in areas such as leveraged buyouts of businesses, marital property agreements,
foreclosures sales of real property, to name a few examples.” (Margaret
Sheneman, State Bar of Cal. (Business Law Section), mem. to Judith Harper,
Legis. Rep. on Sen. Bill No. 2150 (1985-1986 Reg. Sess.) Apr. 30, 1986, p. 2,
italics added.) The Legislature, however, added no provisions relating to marital
property transfers.
In sum, both when it enacted former Civil Code section 5120.160 and when
it enacted the UFTA, the Legislature was advised that difficulties could arise from
the intersection of family law and laws prohibiting fraudulent transfers. In both
cases, it chose not to address the subject with specific legislation. In these
circumstances, we cannot draw any conclusions as to what the Legislature
intended based on the absence of legislative action.
D. Policy Considerations

The Court of Appeal here concluded that neither the language of the
statutes nor their legislative history was dispositive, and that it would have to turn
to an analysis of the relevant policy considerations as they bear on the question of
legislative intent. The court that decided Gagan v. Gouyd, supra, 73 Cal.App.4th
835, also found that neither the statutory text nor legislative history was sufficient
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to resolve the conflict, requiring it to base its decision on policy considerations.
We arrive at the same juncture.
The California Legislature has a general policy of protecting creditors from
fraudulent transfers, including transfers between spouses. A transfer before
dissolution can be set aside as a fraudulent conveyance. (See Fam. Code, § 851
[transmutation of marital property subject to UFTA]; Reddy v. Gonzalez (1992) 8
Cal.App.4th 118, 122-123.) A transfer after dissolution can be set aside under the
clear terms of the UFTA. When the court divides the marital property in the
absence of an agreement by the parties, it must divide the property equally (Fam.
Code, § 2550), which provides some protection for a creditor of one spouse only.
In view of this overall policy of protecting creditors, it is unlikely that the
Legislature intended to grant married couples a one-time-only opportunity to
defraud creditors by including the fraudulent transfer in an MSA.
Husband puts forward two countervailing policy considerations. First, he
argues that allowing MSA transfers to be considered fraudulent to creditors will
complicate marital settlement negotiations. This contention is supported by
Gagan v. Gouyd, supra, 73 Cal.App.4th at pages 842-843, which states: “[A]s a
matter of policy, we believe that to engraft the fraudulent transfer remedies onto a
valid and approved marital settlement agreement would result in needlessly
complicating the already emotionally laden dissolution process. It might result in
the unraveling of a dissolution agreement painstakingly negotiated between the
parties and their attorneys.” We acknowledge Husband’s contention, but we do
not give it substantial weight. In our view, the parties’ debts, and how to pay
them, are matters that should be considered in marital settlement negotiations even
if, like pension plans and income tax consequences, they make the process of
reaching an agreement more complex.
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Second, Husband argues that the state and the parties need to rely on the
finality of dissolution judgments. But California and federal law already permit
such judgments to be set aside for fraud. Under state law, either spouse can attack
the property division under a dissolution judgment on the ground that it was
procured by extrinsic fraud. (Fam. Code, § 2122, subd. (a).) Under federal
bankruptcy law, a bankruptcy trustee, acting in the interest of creditors, can set
aside the property division of a dissolution judgment on the ground of fraud. (See
Britt v. Damson (9th Cir. 1964) 334 F.2d 896, 902; In re Hope (Bankr. D.Colo.
1999) 231 B.R. 403, 415 & fn. 19, and cases cited.) Thus, while the law respects
the finality of a property settlement agreement “that is not tainted by fraud or
compulsion or is not in violation of the confidential relationship of the parties”
(Adams v. Adams (1947) 29 Cal.2d 621, 624), we find no legislative policy to
protect such agreements from attack as instruments of fraud.
We therefore conclude, based on the policy considerations underlying the
UFTA and the Family Code provisions governing dissolution judgments and
settlements, that the UFTA applies to property transfers under MSA’s.2
III. THERE IS NO TRIABLE ISSUE OF FACT AS TO CONSTRUCTIVE FRAUD
The Court of Appeal found triable issues of fact as to both actual fraud and
constructive fraud. On review here, Husband challenges only the issue of
constructive fraud.
There are two forms of constructive fraud under the UFTA. Civil Code
section 3439.04, subdivision (b), provides that a transfer is fraudulent if the debtor
did not receive reasonably equivalent consideration and either “(1) Was engaged or
about to engage in a business or a transaction for which the remaining assets of the

2
Gagan v. Gouyd, supra, 73 Cal.App.4th 835, is disapproved to the extent it
is inconsistent with this opinion.
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debtor were unreasonably small in relation to the business or transaction; or [¶] (2)
Intended to incur, or believed or reasonably should have believed that he or she
would incur, debts beyond his or her ability to pay as they became due.” Civil Code
section 3439.05 provides that a transfer is fraudulent as to an existing creditor if the
debtor does not receive reasonably equivalent value and “was insolvent at that time
or . . . became insolvent as a result of the transfer . . . .” Only the form of
constructive fraud defined in Civil Code section 3430.05 is at issue here.
Whether Husband here received equivalent value in the property division is
a material disputed fact, as the trial court recognized. But constructive fraud under
Civil Code section 3430.05 also requires that the transferor was insolvent at the
time of the transfer, or rendered insolvent by the transfer. We find no triable issue
of fact on the question of insolvency.
Under the UFTA’s definition, a “debtor is insolvent if, at fair valuations,
the sum of the debtor’s debts is greater than all of the debtor’s assets.” (Civ.
Code, § 3439.02, subd. (a).) To determine solvency, the value of a debtor’s assets
and debts are compared. By statutory definition, a debtor’s assets exclude
property that is exempt from judgment enforcement. (Civ. Code, § 3439.01, subd.
(a)(2).) Retirement accounts are generally exempt. (Code Civ. Proc., § 704.115;
see Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 13-15.) Here,
when Husband’s exempt retirement account is excluded, his sole postdissolution
asset is his medical practice. That practice had a value as low as $72,000 at the
time of the dissolution, according to plaintiff’s appraisal evidence.
Plaintiff argued that the trial court should compare the value of Husband’s
medical practice (his sole nonexempt asset) to the present value of the entire child
support obligation (his sole debt), which plaintiff’s expert estimated at between
$164,829 and $205,975, and determine that Husband was insolvent after he
executed the MSA. The trial court rejected plaintiff’s argument on the ground that
the unmatured portion of plaintiff’s child support claim could not be fairly valued.
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The Court of Appeal disagreed. It held that Husband’s child support debt should
be taken into account at its present discounted value, and therefore it concluded
that solvency, like consideration, was a triable issue of fact.
We disagree with the Court of Appeal’s analysis. Although the UFTA
recognizes an unmatured contingent claim as a debt (Civ. Code, § 3439.01, subds.
(b), (d)), child support claims present a special case. Support payments usually are
paid from present earnings, not liquidation of preexisting assets. The amount of
payments owed is computed on the basis of monthly disposable income. (Fam.
Code, § 4055, subd. (a).) This figure is generally based on actual earnings,
although the trial court has discretion to consider earning capacity instead of
actual income (Fam. Code, § 4058, subd. (b)), and child support payments may be
changed, in some cases retroactively, if there is a change in actual earnings or
earning capacity. (Fam. Code, § 3651, subd. (a); In re Marriage of Laudeman
(2001) 92 Cal.App.4th 1009, 1015.)3
Assets at the time of dissolution play little part in the computation of child
support. They may enter indirectly into the calculation in two ways: (1) In
assessing earning capacity, a trial court may take into account the earnings from
invested assets (see, e.g., In re Marriage of Cheriton (2001) 92 Cal.App.4th 269,
292); and (2) a court may deem assets a “special circumstance” (Fam. Code,
§ 4057, subd. (b)(5)) that may justify a departure from the guideline figure for
support payments (In re Marriage of Loh (2001) 93 Cal.App.4th 325, 332). But
these are exceptional situations; the child support obligation is based primarily on
actual earnings and earning capacity.

3
The statements in this paragraph and the following two paragraphs are
generalizations. There are many specific provisions that affect the calculation of
child support, and our generalizations are not intended to override or modify such
specific provisions.
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Income not yet earned, however, is not an asset under the UFTA unless it is
subject to levy by a creditor, as would be the case if, for example, the transferor
possessed a promissory note payable at a future date. (See Civ. Code, § 3439.01,
subd. (a)(2); Carter v. Carter (1942) 55 Cal.App.2d 13, 15-16.) Thus, Husband’s
future earnings, or his future earning capacity, would not appear on the balance
sheet to offset his child support obligation.
We have found no cases that consider whether future child support
obligations constitute a debt under the UFTA. In their briefs, the parties discuss In
re Labrum & Doak, LLP (Bankr. E.D.Pa. 1998) 227 B.R. 383, a bankruptcy case
involving whether future lease payments could be considered a debt, apparently
the closest analogy they could find to the present case. The court there said: “[I]t
is logical not to include all of the future rents as liabilities because this calculation
miscategorizes the future rent liability as an obligation presently due in full . . . .
[T]his would render any business with substantial projectable future expenses
artificially deemed insolvent.” (227 B.R. at p. 389.) But the parties dispute the
meaning of this language. According to Husband, the court held that rents not yet
due were not liabilities, while plaintiff claims that the court was concerned about
only the failure to reduce future rent payments to present value.
We conclude, however, that future child support payments should not be
viewed as a debt under the UFTA. In construing statutes, we avoid any
interpretation that will lead to absurd consequences. (People v. Coronado (1995)
12 Cal.4th 145, 151.) To treat future child support payments as a debt, while not
viewing the earning capacity from which they will probably be paid as an asset,
would yield an absurd result. Relatively few parents of young children have
current assets sufficient to pay the present discounted value of years and years of
future support obligations. Thus, treating future child support as a current debt
would label many persons with child support obligations as insolvent under the
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UFTA even though they were current on their child support obligations and will be
able to pay future obligations as they became due. This insolvency, moreover, is of a
wholly artificial character, for the debtor cannot be compelled to convert future child
support obligations into a present cash payment, and in fact generally cannot even
voluntarily terminate liability for future support by paying the custodial parent the
present value of such future payments. (See In re Marriage of Cheriton, supra, 92
Cal.App.4th 269.) No legislative purpose is served by treating a parent as insolvent
because of child support obligations when that parent has paid all payments currently
due and can pay future payments from future earnings or earning capacity.
In light of our conclusion that future child support payments should not be
considered a debt under the UFTA,4 Husband here was not insolvent at the time of
the transfer nor was he rendered insolvent by the transfer. There is thus no triable
issue of fact as to constructive fraud. Actual fraud, however, remains a triable
issue for decision by the trial court.
DISPOSITION
The judgment of the Court of Appeal is reversed, and the cause is remanded
for further proceedings.
KENNARD,
J.
WE CONCUR:

GEORGE, C. J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
BROWN, J.
MORENO, J.

4
This reasoning would apply equally to future spousal support payments.
We take no position, however, on the classification of other contingent or
installment payments.
17

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Mejia v. Reed
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted

XXX 97 Cal.App.4th 277
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S106586
Date Filed: August 14, 2003
__________________________________________________________________________________

Court:

Superior
County: Santa Clara
Judge: Frank Cliff and Robert A. Baines

__________________________________________________________________________________

Attorneys for Appellant:

Anderson & Blake, Hannig Law Firm and John H. Blake for Plaintiff and Appellant.

Douglas B. Schwab for Jeffrey W. Little as Amicus Curiae on behalf of Plaintiff and Appellant.

__________________________________________________________________________________

Attorneys for Respondent:

Olimpia, Whelan & Lively, Olimpia, Whelan, Lively & Ryan, Gary L. Olimpia, Adam R. Bernstein;
Robinson & Wood and Helen E. Williams for Defendant and Respondent Danilo Reed.

Law Offices of Vanessa A. Zecher and Vanessa A. Zecher for Defendant and Respondent Violeta Reed.

18

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Counsel who argued in Supreme Court (not intended for publication with opinion):

John H. Blake
Hannig Law Firm
2991 El Camino Real
Redwood City, CA 94061-4003
(650) 482-3040

Douglas B. Schwab
1900 Avenue of the Stars, Suite 2410
Los Angeles, CA 90067
(310) 553-7176

Helen E. Williams
Robinson & Wood
227 North First Street
San Jose, CA 95113
(408) 298-7120

19

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Opinion Information

Date:	Docket Number:
Thu, 08/14/2003	S106586

Disposition
Aug 14 2003	Opinion: Reversed

Dockets
May 9 2002	Petition for review filed   by counsel for Defendants and Respondents (Danilo Reed, et al.,) (40k)
May 9 2002	Record requested
May 9 2002	Joinder to petition filed   by counsel for respondent (Violetta Reed) (40K)
May 10 2002	Received Court of Appeal record   file jacket/briefs/tranx
May 21 2002	Record requested   rehearing ptn from CA6
May 24 2002	Received Court of Appeal record   ptn for rehearing and answer.
May 29 2002	Answer to petition for review filed   by counsel for appellant (Rhina Mejia).
Jun 12 2002	Petition for Review Granted (civil case)   Votes: George, CJ., Kennard, Baxter, Werdegar, Chin, Brown, Moreno, JJ.
Jun 13 2002	Received letter from:   counsel for respondent Danilo Reed.
Jun 25 2002	Request for extension of time filed   counsel for respondent Danilo Reed asking to August 12, 2002 to file opening brief on the merits. **granted - order being prepared**
Jun 25 2002	Certification of interested entities or persons filed   by counsel for appellant Rhina Mejia.
Jul 3 2002	Extension of time granted   to and including August 12, 2002 for respondent (Danilo Reed) to file the opening brief on the merits.
Jul 8 2002	Certification of interested entities or persons filed   by counsel for respondent Danilo Reed.
Jul 8 2002	Association of attorneys filed for:   counsel for respondent hereby associates with Helen E. Williams of the law offices of Robinson & Wood, Inc. as co-counsel of record.
Jul 24 2002	Request for extension of time filed   by respondent Danilo Reed - asking to Sept. 11, 2002 to file opening brief on the merits. **granted - order being prepared**
Jul 25 2002	Note:   second request for Certification of Interested Entities form from counsel for respondent Violetta Reed.
Jul 25 2002	Extension of time granted   to and including Sept. 11, 2002 for respondent Danilo Reed to file the opening brief on the merits.
Aug 5 2002	Certification of interested entities or persons filed   by counsel for respondent Violetta Reed.
Sep 4 2002	Request for extension of time filed   by respondent requesting to Sept. 30, 2002 to file opening brief on the merits. *ok to grant - order being prepared.*
Sep 5 2002	Extension of time granted   On application of respondents and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including Sept. 30, 2002.
Sep 30 2002	Request for judicial notice filed (in non-AA proceeding)   by counsel for respondent Danilo Reed. 2 binders (original & supreme court copy only) of legislative history materials accompanying request for judicial notice.
Oct 1 2002	Opening brief on the merits filed   by counsel for respondent Danilo Reed. (timely filed per rule 40k)
Oct 1 2002	Joinder to brief on the merits filed   respondent Violeta Reed's joinder in opening brief on the merits filed by Danilo Reed. (timely filed per rule 40k)
Oct 21 2002	Request for extension of time filed   appellant (Mejia) asking to Dec. 16, 2002 to file answer brief on the merits.
Oct 23 2002	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including Dec. 16, 2002.
Nov 14 2002	Filed:   Request for republication of opinion, filed by non-party attorney Douglas B. Schwab. (received in LA - filed pursuant to rule 976(d) CRC)
Dec 17 2002	Answer brief on the merits filed   by counsel for appellant (Rhina Mejia). (timely filed per rule 40k CRC)
Dec 18 2002	Order filed   The request for an order directing republication of the opinion in the above-entitled appeal is denied.
Dec 24 2002	Request for extension of time filed   by counsel for respondent, Danilo Reed, asking to Feb. 4, 2003 to file reply brief on the merits.
Dec 30 2002	Extension of time granted   On application of respondent Danilo Reed and good cause appearing, it is ordered that the time to serve and file the reply brief on the merits is extended to and including Feb. 4, 2003.
Jan 6 2003	Request for extension of time filed   by counsel for respondent Violeta Reed - joinder in Danilo Reed's request for extension to Feb. 4, 2003 to file reply brief.
Jan 8 2003	Extension of time granted   On application of respondent Violeta Reed and good cause appearing, it is ordered that the time to serve and file the joinder in Danilo Reeds reply brief is extended to and including February 4, 2003.
Jan 29 2003	Notice of substitution of counsel received   from attorney Helen E. Williams. Respondent Danilo Reed substitutes in as counsel Helen E. Williams in place of former counsel Gary L. Olimpia.
Feb 4 2003	Received document entitled:   Violeta Reed's joinder in Danilo Reed's reply brief filed by respondent Danilo Reed. (waiting for Danilo Reed's reply brief)
Feb 5 2003	Received document entitled:   Proof of service of substitution of attorneys from counsel for respondent Danilo Reed.
Feb 5 2003	Reply brief filed (case fully briefed)   by counsel for respondent Danilo Reed. (timely filed per rule 40k CRC)
Feb 5 2003	Joinder to brief on the merits filed   Violeta Reed's joinder in Danilo Reed's reply brief filed by respondent Danilo Reed. (recv'd 2/4/03)
Mar 10 2003	Received application to file amicus curiae brief; with brief   Jeffrey W. Little [rule 40k]
Mar 17 2003	Permission to file amicus curiae brief granted   Jeffrey W. Little
Mar 17 2003	Amicus Curiae Brief filed by:   The application of Jeffrey W. Little for permission to file an amicus curiae brief in support of appellant is hereby granted. Answer due by any party within FIFTEEN (15) DAYS.
Apr 2 2003	Response to amicus curiae brief filed   by counsel for respondent (Danilo Reed). Answer to amicus brief filed by Jeffrey W. Little. (40k)
Apr 2 2003	Filed:   Violeta Reed's joinder in answer to amicus curiae brief of Jeffrey W. Little filed by respondent Danilo Reed.
Apr 30 2003	Request for judicial notice granted
Apr 30 2003	Case ordered on calendar   5-27-03, 1:30pm, S.F.
May 23 2003	Filed:   Request of aplt counsel to allocate oral argument time to A/C Jeffrey Little. (faxed) (proof of service will be sent)
May 23 2003	Order filed   The request of counsel for aplt to allow two counsel to argue on behalf of appellant at oral argument is granted.
May 23 2003	Order filed   The request of appellant to allocate to A/C Jeffrey W. Little 10 minutes of aplt's 30-minute allotted time for oral argument is granted.
May 27 2003	Cause argued and submitted
Aug 14 2003	Opinion filed: Judgment reversed   and remanded. Majority Opinion by Kennard, J. joined by George C.J., Baxter, Werdegar, Chin, Brown & Moreno, JJ.
Aug 14 2003	Received letter from:   counsel for respondent (Danilo Reed) advising the court that Gary L. Olimpia & Adam Bernstein were substituted out of the case and should not appear in the opinion as current counsel.
Sep 16 2003	Remittitur issued (civil case)
Sep 18 2003	Note:   Record sent to CA6 - 2 doghouses.
Sep 18 2003	Received document entitled:   Receipt for remittitur - from CA6

Briefs
Oct 1 2002	Opening brief on the merits filed
Dec 17 2002	Answer brief on the merits filed
Feb 5 2003	Reply brief filed (case fully briefed)
Mar 17 2003	Amicus Curiae Brief filed by:
Apr 2 2003	Response to amicus curiae brief filed

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website