## Facts

- Husband and wife married in 1900; husband entered the marriage owning and operating a saloon and cigar business funded by approximately $15,500 of his separate-property capital.
- The separate capital remained invested in the business throughout the marriage, while the husband continued operating the business at a profit.
- During an earlier marital dispute and pending an earlier divorce action, the spouses executed a written agreement: the wife would dismiss the action and resume cohabitation; if the husband later gave her a new cause for divorce and she proved it, he would pay a fixed sum in full settlement of her property claims.
- In 1905, the wife obtained an interlocutory decree of divorce on the ground of extreme cruelty.
- The trial court refused to enforce the prior agreement as contrary to public policy and treated all business profits during marriage as community property, awarding the wife three-fifths of the community estate, plus custody and support-related orders.
- The husband appealed, challenging invalidation of the agreement, the characterization of profits, and the court’s power to decide property and custody issues in the interlocutory judgment.

## Issues

1. Whether a marital agreement made while a divorce action is pending—requiring the wife to dismiss the action and obligating the husband to pay a fixed sum if he later gives her a new cause for divorce—is void as against public policy.
2. Whether profits from a business operated during marriage using a definite pre-marital separate-property capital investment must be apportioned between separate and community property, rather than treated entirely as community property.
3. Whether the trial court may determine property rights and child custody in an interlocutory divorce judgment under the 1903 amendments to California Civil Code provisions governing divorce decrees.

## Decision

- The divorce and custody determinations were affirmed.
- The agreement was held void as against public policy.
- The trial court erred by treating all business profits as community property without attributing any portion to the husband’s separate capital.
- The judgment was modified to credit the husband’s separate estate with a return equal to 7% per annum interest on his separate capital invested in the business; the remaining profits were treated as community property and divided under the trial court’s allocation.
- As modified, the interlocutory decree was affirmed; on the husband’s appeal, the court declined to enlarge the wife’s award.

## Legal Principles

- A marital contract that conditions payment on a spouse’s future marital misconduct giving rise to a new divorce cause, and is made in connection with dismissing a pending divorce action, is void because it tends to facilitate marital dissolution by pricing future wrongdoing.
- When a spouse brings a definite amount of separate-property capital into a business that continues during marriage, some portion of the profits is presumed attributable to that capital and remains separate property.
- In the absence of contrary evidence, the separate estate must receive at least the usual or legal interest on a well-secured, long-term investment; only the excess profits beyond that return are treated as community property.
- Under the 1903 statutory scheme delaying the final divorce decree, a trial court may resolve property division and child custody in the interlocutory judgment, though it retains discretion to postpone deciding such issues.

## Conclusion

The court invalidated a divorce-contingent marital agreement as contrary to public policy, required apportionment of business profits by crediting separate capital with a reasonable interest return (applied at 7%), and confirmed that property and custody issues may be decided in the interlocutory divorce judgment.


Pereira v. Pereira, 156 Cal. 1, 103 P. 488 (Cal. 1909)