Can a Spouse be Removed from Mortgage if Divorce Agreement Does not Require it?

In the recent California appellate decision in Marriage of McConnell and Jahnke, Appellant Jason McConnell challenged a judgment entered in his marital dissolution action based on a written settlement agreement between him and his ex-wife, Suzanne Jahnke.

In his primary claim, McConnell contended that the trial court erred by ruling that the parties’ agreement that “awarded” Jahnke the marital “home, and all debts thereon” did not require her to remove him from their jointly held mortgage.

The appellate court rejected this contention and McConnell’s other claims and affirmed the trial court’s ruling, concluding that although the provision at issue made Jahnke solely responsible for the mortgage, it unambiguously did not include an implied term requiring her to remove McConnell from the mortgage.

In so concluding, it held that a divorcing party who agrees to assume a joint mortgage in a property settlement cannot be forced to remove the other spouse from the mortgage absent an explicit term requiring it.

Jahnke and McConnell married on December 23, 2005. They worked as vintners and owned over 200 acres of land near Ukiah, living together in a home on Rivino Ranch Road that Jahnke built before the marriage (the home).

In April 2015, Jahnke added McConnell to the home’s title. The following February, the parties obtained a $700,000 mortgage on the home with a Mendocino County bank.

Jahnke and McConnell separated on April 25, 2020.

Two months later, Jahnke filed a petition for dissolution of marriage.

On December 30, 2021, the marriage was terminated by a status-only judgment.

At the time the parties separated, the balance on the home’s mortgage was approximately $650,000. The order does not appear in the record, but the trial court apparently directed Jahnke to pay spousal support and cover the mortgage, even though McConnell continued living in the home.

In the course of contentious attempts to disentangle the parties’ property, Jahnke apparently secured a writ of possession against McConnell requiring him to remove his personal property from the home. McConnell apparently obtained a domestic violence restraining order against Jahnke, and she sought one against him, appealing when it was denied.

After settlement discussions were unsuccessful, the parties appeared for a trial on March 11, 2024.

During a recess, they reached an agreement, and when they returned they stated several components of their agreement for the record.

Later that afternoon, the parties filed their written memorandum of understanding (MOU) and confirmed on the record that it was “what [they were] agreeing to.”

In the MOU, the parties agreed that Jahnke would receive virtually all the community property. She was awarded the real property at Rivino Ranch Road, and all debts thereon.

Jahnke was also awarded any and all interest held by McConnell, including debts and liabilities, in two companies: Pink Sands, Inc., which operated the winery and tasting room, and Riverwine, LLC, which held title to most of the acreage.

McConnell, in turn, received an equalization payment of $3,800,000 and certain personal property, including a 2019 Dodge RAM truck.

The MOU set a schedule for Jahnke to make equalization payments to McConnell and required McConnell to execute any documents needed to transfer his interests in the home and the two companies within 10 days of receiving the documents.

The parties agreed to release each other from all known claims, including claims for spousal support, except as otherwise provided in the MOU.

The MOU provided that it contained “all of the material terms of the parties’ settlement” and was enforceable under Code of Civil Procedure section 664.6.

The MOU further stated that although the parties contemplated executing a full Marital Settlement Agreement, the MOU was “binding and enforceable” even if no such agreement was ultimately executed.

As it turned out, conflict arose over whether to include a provision requiring Jahnke to remove McConnell from the home’s mortgage, and a full settlement agreement was never finalized.

Instead, in September 2024, Jahnke filed a request for an order for entry of judgment consistent with the MOU. McConnell also filed his own request for entry of judgment in which he asked the trial court to order Jahnke to remove him as a borrower on the mortgage.

In his papers, McConnell mentioned various points during the settlement negotiations at which Jahnke purportedly agreed that he should be removed from the mortgage.

In response, Jahnke filed a motion to exclude parol evidence of the meaning of the MOU provision awarding her the home, which McConnell opposed.

On December 30, 2024, after a hearing on the competing requests to enter judgment, the trial court ruled in Jahnke’s favor. The court concluded that the provision awarding Jahnke the home was unambiguous and did not require her to remove McConnell from the mortgage.

In explaining its reasoning, the court noted the absence of any “mechanism” for removing McConnell, in contrast to other provisions describing specific actions and timelines.

The court also stated that it had considered Family Code section 916, subdivision (b), which Jahnke’s counsel argued contemplated instances where one debt is assigned to a specific spouse and the other spouse may remain liable to a third party.”

The court then entered judgment on the terms of the MOU without hearing any parol evidence.

McConnell claimed that the provision in the MOU that “awarded” Jahnke the home “and all debts thereon” unambiguously requires her to remove him from the mortgage.

Alternatively, he claimed that even if the MOU is ambiguous on this point, the trial court should have admitted parol evidence of the parties’ intent to impose this requirement.

The appellate court was not persuaded on either count.

An agreement pertaining to marital dissolution proceedings is construed under the statutory rules governing the interpretations of contracts generally.

The basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting.

When a contract is reduced to writing, the parties’ intention is determined from the writing alone, if possible.

The words in a contract carry their ordinary and popular meaning unless the parties’ usage indicates a technical sense or a special meaning.

If a contract’s “language is clear and explicit, and does not involve an absurdity,” the unambiguous meaning governs.

Ambiguity arises if a word or phrase is reasonably susceptible of more than one meaning.

Thus, when a dispute arises over the meaning of contract language, the first question is whether the language is “reasonably susceptible” to the interpretation urged by the party.

If it is not, the case is over.

The MOU does not contain an implied term requiring Jahnke to remove McConnell from the mortgage.

The primary issue the appellate court had to resolve was whether the provision that “awarded” the “home, and all debts thereon” to Jahnke required her to remove McConnell from the mortgage.

It concluded it did not.

The ordinary meaning of the verb “award” is to confer or bestow something as being deserved or merited or needed or to give by judicial decree or after careful consideration.

According to McConnell, the provision at issue, when read in context, displays a clear intent for Jahnke “to assume the debt as her separate obligation.”

Jahnke interprets the provision to mean that she “was assigned the responsibility for the mortgage debt as between the parties.” In other words, the parties agreed that the awarding of the home and all debts thereon to Jahnke made her solely responsible for paying the mortgage.

Where the parties differ is on the issue whether Jahnke’s assumption of an obligation to pay the mortgage necessarily included an obligation to remove McConnell from that loan.

According to McConnell, “the only way to effectuate” the parties’ intent that he “would no longer have continuing liability for” the mortgage was for Jahnke to take him off the debt.

Jahnke responds that McConnell’s interpretation would violate the rules of contractual interpretation by inserting a new term into the agreement.

Jahnke had the better argument. Implied terms are not favored in the law and should be read into contracts only upon grounds of obvious necessity.

McConnell did not adequately explain why requiring Jahnke to remove his name from the mortgage—which, depending on the lender’s response, would potentially entail refinancing the mortgage or even paying it off entirely—was the onlyway to ensure performance of the term making her responsible for that debt.

As Jahnke observed, a person may remain liable to a creditor even if a debt is assigned to that person’s spouse, but the person has a right of reimbursement under Family Code section 916, subdivision (b), if the spouse fails to pay the debt.

In other words, the award of a previously joint debt to one spouse does not require the underlying contractual obligations to be reconfigured, and the appellate court agreed with the trial court that the parties were presumably aware of this principle.

The incorporation of current law into a contract is presumed and does not require a deliberate expression by the parties.

The fact that a right of reimbursement might not fully protect McConnell’s interests did not mean the appellate court can read into the MOU more favorable terms.

Other parts of the MOU supported the interpretation that the provision at issue did not include an implied term requiring Jahnke to remove McConnell from the mortgage.

The second sentence of the provision awarding the home and all debt thereon to Jahnke expressly required McConnell to execute an interspousal grant deed within 10 days of being presented with the document.

The MOU also contained similar requirements involving the execution of documents necessary to transfer McConnell’s interests in Pink Sands and Riverwine.

The appellate court agreed with the trial court that the absence of a comparable term requiring Jahnke to take specific action to remove McConnell from the mortgage further established that there was no joint intent to impose such a duty on her.

In short, it rejected McConnell’s interpretation of the MOU and concluded that the agreement did not require Jahnke to remove him from the mortgage. 

McConnell alternatively claimed that the provision at issue “is at the very least ambiguous,” meaning the trial court erred by failing to consider extrinsic evidence of its meaning.

The appellate court rejected that claim.

Generally speaking, under the parol evidence rule, extrinsic evidence, whether oral or written, is inadmissible to vary, alter, or add to the terms of an integrated written instrument.

Although the rule results in the exclusion of evidence, it is not a rule of evidence but is one of substantive law, under which the terms contained in an integrated written agreement may not be contradicted by prior or contemporaneous agreements.

Parol evidence is admissible to construe a written instrument when its language is ambiguous. The test of whether parol evidence is admissible is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is reasonably susceptible.

Under Code of Civil Procedure section 1856, there are “two levels of contract integration or finality: (1) the parties intended the writing to be the final expression of their agreement; and (2) the parties intended the writing to be the complete and exclusive statement of the terms of their agreement.

If a contract falls into the first level, as a final expression, then a prior or contemporaneous oral agreement is admissible if it does not contradict the writing, and evidence of consistent additional terms may be used to explain or supplement the writing.

If a contract falls into the second level, as a complete and exclusive statement, evidence of consistent additional terms may not be used to explain or supplement the writing.

LESSONS:

1.         The award of a previously joint debt to one spouse does not require the underlying contractual obligations to be reconfigured, and the appellate court agreed with the trial court that the parties were presumably aware of this principle.  

2.         Generally speaking, under the parol evidence rule, extrinsic evidence, whether oral or written, is inadmissible to vary, alter, or add to the terms of an integrated written instrument.

3.         Parol evidence is admissible to construe a written instrument when its language is ambiguous. The test of whether parol evidence is admissible is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is reasonably susceptible.