A California Appellate Court has ruled that Trial Court was wrong in finding that life insurance policy purchased during marriage with community property funds was community property where Father testified that he intentionally made Mother policy’s owner and beneficiary so that "there would be money for everybody," if something happened to him. In the case of In re Marriage of Valli, Mother and Father were married in 1984, and had three children together. Around 2003, Father experienced "heart problems" that required his hospitalization. According to Mother, she and Father discussed buying a multi-million dollar life insurance policy on Father, so that Mother and Children would be financially secure if "something happened" to Father.
In March of 2003, a life insurance agent sold Father a $3.75 million life insurance policy, but at Father’s instruction, made Mother the policy owner and the beneficiary. Father’s business manager made sure that the premium payments were made out of Mother and Father’s joint account.
Mother and Father separated on September 23, 2004, and Father filed for divorce. After that, the premium payments were made from Father’s separate property account. At the divorce trial, Mother testified that Father and his business manager told her that she would be the owner of the life insurance policy. Father testified that he put the policy in Mother’s name because he believed she’d give the Children funds they needed for college and other expenses, and everyone would be taken care of. The insurance agent told Trial Court that Mother was the owner and the beneficiary of policy, which was sold by his employer.
Mother contended that the policy was her separate property because she was its owner. Mother and Father agreed, however, that the policy premiums had been paid from their community property funds before the date of separation.
Trial Court found that the life insurance policy was community property because it was acquired, and its premiums were paid, during marriage, and there was no evidence of a transmutation. Trial Court then awarded the policy to Father, but ordered him to make an equalizing payment to Mother in the sum of $182,500, which represented her community property share of the policy’s cash value as of the date of the trial.
Claiming that Trial Court was wrong by finding that the policy was community property, Mother appealed, and the California Court of Appeals reversed the Trial Court’s decision and sent the case back to Trial Court. The California Appellate Court finds that (1) when spouses acquire property during marriage and title is taken in only one spouse’s name, with the other spouse’s consent, that property is separate property of spouse in whose name it is taken; (2) this form of title presumption may be rebutted by clear and convincing proof of an agreement or an understanding between the parties that form of title did not reflect their intent; (3) form of title presumption applies to both real and personal property, including life insurance policies; (4) Father failed to present any evidence to show that the title to life insurance policy in Mother’s sole name did not reflect parties’ intent (Father’s testimony showed he intended Mother to be the policy owner); (5) fiduciary duty between spouses (California Family Code Section 721) does not trump form of title presumption because acquisition of policy was not a transaction between spouses (Mother did not participate in that transaction, which was between Father and the insurance agent), and there was no evidence of undue influence; and (6) California Family Code Section 852 regarding transmutations does not apply because the policy was acquired from third party, not through interspousal transaction. The Appellate Court further ruled that Trial Court made a mistake by finding that the life insurance policy was community property. Thus, the Appellate Court reversed Trial Court’s decision and remanded the case back to Trial Court for further proceedings, including any necessary reallocation or reimbursement.