WHAT THIS CASE MEANS TO YOU!
Life Insurance, Divorce and Community Property
Marriage of Valli (2014) 58 Cal.4th 1396, 171 Cal.Rptr.3d 454, 324 P.3d 274
During marriage, Frankie Valli (yes, the singer) purchased a whole life insurance policy on his life naming his wife, Randy, as the “owner” of the cash out value of the policy (approximately $350,000). She was also the named beneficiary on the policy. In their divorce, Randy claimed the cash value as her separate property because when Frankie bought the policy (with community property funds), he placed her on title as the “owner”. In other words, despite the fact the policy was purchased during marriage with community property funds, Randy claimed Frankie had “gifted”, or “transmuted”, to her the cash value because when he purchased the policy, he put her on title as the owner.
To determine ownership of the life insurance policy’s cash value, the Court considered two different California code sections:
1. California Evidence Code, Section 662, which states:
“The owner of the legal title to property is presumed to be the owner of the full beneficial title (the cash value). This presumption may be rebutted only by clear and convincing proof.”
2. California Family Code, Section 852, which states:
“(a) A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.
(b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded.
(c)This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage. . .”
Evidence Code, Section 662, and Family Code, Section 852, are clearly in conflict. After consideration of the facts and the two code sections the Court determined:
Unless the statutory transmutation requirements are met, a life insurance policy purchased with community property funds during marriage remains community property after divorce. The Evidence Code, Section 662, presumption of title does not apply where it conflicts with the family law transmutation statutes (Family Code, Sections 850-852).
Thus, Randy lost her argument and the cash value of the life insurance policy would be considered community property.
What other circumstances might involve community property and the transmutation implications of Family Code, Section(s) 850-852?
Let’s use a common example to see how this works. For their 10th wedding anniversary, a Husband buys his Wife an expensive piece of jewelry from a local jewelry store, a $25,000 diamond ring. Few would argue the ring has “substantial value”. But would the ring be the separate property of Wife because Husband gifted it during marriage (giving Wife “title to the ring”)? The answer is NO! It would not be a valid gift unless purchased by someone of extraordinary wealth (in other words, a person of such means that spending $25,000 would be a small amount, which would be a circumstance of the marriage).
So how could the couple ensure the ring was Wife’s separate property?
Husband would make a writing, joined by Wife, wherein he specifically states he intends the ring to be the separate property of Wife (specifics might include a description of the ring, the place where it was purchased, the amount spent and the date and occasion when it was gifted to Wife). Once a writing is made, it would be recorded with the Registrar’s Office of the County Recorder, thus giving 3rd parties notice the ring is the sole and separate property of Wife.
Note: An anniversary card written by Husband accompanying the gift would probably not be a sufficient writing to overcome the transmutation requirements of Section 852.