PLEASE NOTE - The California Supreme Court granted review of this decision
on 8/24/11 and as a result the opinion reviewed below has been vacated.
POSTSCRIPT: On May 15, 2014 the California Supreme Court overruled the Second Appellate District's opinion, discussed below, finding that there is no "super-presumption" from Evidence Code section 662 that can appropriately be applied to the characterization of property under the California Family Law codes and sections. I will blog this momentous decision shorty, and point out why it is a terrific decision for evening the playing field between more and less empowered spouses and domestic partners.
The California Second Appellate District issued its ruling in Marriage of Valli on May 18, 2011, reversing a Los Angeles trial court that had found that a $3.75 million insurance policy purchased during marriage was the parties' community property. Instead Justice Stanley Mosk declared that the 'super-presumption' contained in Evidence Code section 662 trumps the more general presumption per Family Code section 760 that property acquired during marriage is jointly owned. Interestingly, this was true even in the absence of direct evidence of the title to the policy itself; it was sufficient that the insurance agent who sold the policy testified the policy was issued in the name of the Wife and that he'd been told it was being purchased for the protection of the family.
At issue was who owned a 'blended universal life insurance contract' on Husband's life (this is THE singer Frankie Valli) bought some eighteen months before separation that had a cash surrender value of $365,032 by time of trial. Husband argued that since the policy was acquired during marriage and paid for with community funds, it belonged to the community and each party was therefore entitled to one-half. Wife contended that Husband had told her from the inception of the policy that she was to be the owner of the policy and its sole beneficiary, and this was not disputed. She introduced testimonial evidence that the policy listed her as its owner. The trial court sided with the Husband. The decision turns on legal and not factual issues, and I think it deserves mentioning that this appears to be a case that was ethically litigated - Mr. Valli was wholesomely honest and resisted the temptation to assert a version of what happened that included allegations of "pillowtalk" or other reassurances, for instance, from Wife that she had admitted the policy was joint because these did not occur (nor would they have been helpful) - something that is otherwise common in the "liar's contests" that many dissolutions devolve into.
Family Code section 2550 assigns trial courts a mandatory duty to value and divide equally the parties' community property estate. But what is community property? Generally, factors determinative of whether property is separate or community are the time of acquisition; operation of various presumptions, particularly those concerning the form of title; and whether the spouses have transmuted or converted the property from separate to community or vice versa ...." (In re Marriage of Haines (1995) 33 Cal.App.4th 277, 291).
Family Code section 760 states "[e]xcept as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property." This is the "time of acquisition" rule, and it creates a rebuttable presumption in favor of the creation of CP. That presumption can be overcome by a "preponderance of the evidence" - that is by evidence that shows by a 51% likelihood that it is separate property. FC section 760 is the starting point for any analysis of assets and debts acquired during marriage for purposes of defining the marital balance sheet.
Evidence Code section 662 is an evidentiary presumption, found outside the California Family Code. It states "[t]he owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof." The "clear and convincing" standard of proof is considered to be a "super-presumption" exactly because of what it takes to overcome it. The public policy basis for this evidentiary presumption is to ensure the stability of titles to property and within the insurance context it is important that insurance companies have the ability to rely on their information of who holds title to a policy in paying out death benefits, and in not exposing themselves to multiple claims (and paying the wrong person or heir) upon death.
Hence, under some circumstances, when the general CP presumption and the form of title presumptions collide the form of title presumption trumps the more general presumption.
Here the evidence at trial was largely undisputed. A year before the parties separated crooner Valli was experiencing medical problems and told Wife that he wanted to buy a policy on his own life to make sure he took care of his family in the event he might die. He wanted to ensure the kids could go to college and that "there would be enough money for everybody." At that time the parties had no plans to split up.
Accordingly, he bought the policy from his insurance agent. Husband's business manager told Wife that they intended to make her the owner, and Husband himself testified that he "put everything in [Wife's] name, figuring she would take care and give to the kids what they might having coming." His insurance agent testified at trial the policy was issued in Wife's name. Of interest, however, the policy itself was never introduced into evidence.
Hence, on appeal Wife urged that "the act of taking title to property in the name of one spouse during marriage with the consent of the other spouse effectively removes that property from the general community property presumption. In that situation, the property is presumably the separate property of the spouse in whose name title is taken." Since Husband had failed to introduce "clear and convincing" proof that overcame the title presumption, the equity in the policy belonged to her. Nothing required that proof of the form of title be through documentary evidence where there was sufficient indirect testimony that the policy was titled in Wife's name.
The Second Appellate District Court agreed. "Frankie did not present evidence of an agreement or understanding with Randy [the Wife] that when the policy was placed solely in Randys name as owner, they intended title to the policy to be other than Randy's separate property. (In re Marriage of Brooks, supra, 169 Cal.App.4th at p. 189.) Likewise, Frankie did not present evidence that he was unaware that title to the policy was taken solely in Randys name. That Frankie knew the policy was taken solely in Randy's name is supported by substantial evidence. Frankie testified that he put everything in Randy's name, and Randy testified that Frankie and Siegel told her that they were going to make [her] the owner' of the policy."
Husband also unsuccessfully argued that Family Code section 721 creates an additional presumption of undue influence where one party by taking title in their name solely gains an advantage over the other, and that given that presumption the EC section 662 super-presumption could not come into play. However, 721 applies in interspousal transactions and this was not a transaction between the two married persons but between one of them and the insurance agent. "Randy could not have owed a fiduciary duty to Frankie in a transaction in which she did not participate." Moreover, even if the presumption of undue influence did arise there was sufficient proof rebutting Husband's clear intention to make Wife the owner; Wife had no role in the transaction whatever.
Moreover, the justices noted that there was no evidence that the cash surrender value of the life insurance policy was intended to be a "savings device." Instead, Husband's intent at the policy inception was clear that it was for the benefit of the Wife.
Finally, they dismissed Husband's argument that there had not been a valid transmutation of the policy from community to Wife's separate property. "A 'transmutation' is an interspousal transaction or agreement that works to change the character of property the parties already own. By contrast, the initial acquisition of property from a third person does not constitute a transmutation and thus is not subject to the [Family Code section 852, subdivision (a)] transmutation requirements." Keep in mind that Husband had purchased the policy only 18 months before the parties separated. They had had a 20 year marriage. In order to amass $365,032 in policy equity over such a short period, the community had to have made quite substantial premium payments to fund it. Mr. Valli was 69 when he acquired the coverage, and the cost of the policy had to be exorbitant.
Normally one might reasonably think that the claim that the cash surrender value was now Wife's separate property would require proof of a transmutation from the community to separate property - this is what the trial court assumed to be the case when it found in favor of the Husband. However, Wife's counsel never claimed a transmutation, a wise strategic move.
While this outcome might, at least for Husband, seem unfair it illustrates that in the realm of community verses separate property, when form of title presumptions come into play, as a matter of public policy favoring the stability of financial transactions with third parties (and not just between the spouses alone), the manner in which title is taken controls unless rebutted by extremely compelling evidence. This is not intuitively or even rationally obvious. In California matrimonial law certain fictions may dictate the outcome. This decision is important for any lawyer or self-represented party where one asset acquired during marriage is a life insurance policy. Common sense, and even the expectations of people who are married until the day of separation comes, would seem to militate in favor of a different result.
In remanding the case to the trial court (i.e., sending it back with instructions to enter a new decision consistent with the appellate court's reasoning), the Valli opinion does "leave to the trial court any reallocation of assets or award of reimbursement in light of our holding." Presumably that reimbursement applies to premiums paid by Husband after the date of separation that increased the cash value of the life insurance policy, but does not form a basis for reimbursing what was paid before. Since the policy was acquired in 2003 but trial occurred five years later, this reimbursement is not insubstantial. Of course, Frankie is too old now to be able to acquire a new $3.75 million dollar policy and Wife will receive this money upon his passing if the policy remains in force.
Wife was represented by the divorce powerhouse Los Angeles law firm of Jaffe and Clemens and Husband's appellate team included the highly notable legal scholar Garrett C. Dailey.