Appellate court erred by relying on form of title presumption . . .
In reversal, California Supreme Court holds that life insurance policy purchased during marriage with community funds, which named wife as its sole owner, is subject to transmutation statutes and will be characterized as community property unless statutory transmutation requirements were met
In re Marriage of Valli
(May 15, 2014)
California Supreme Court, S193990, 58 Cal.4 th 1396, 171 Cal.Rptr.3d 454, 2014 FA 1640, per Kennard, J, (Cantil-Sakauye, CJ, Baxter, Werdegar, Chin, Corrigan, Liu, JJ, concurring; Chin, J, joined by Corrigan and Liu, JJ, concurring separately). California Court of Appeal for the Second District: reversed. For wife: William Ryden, CFLS, (310) 550-7477. For husband: Garrett Dailey, CFLS, (510) 465-3920. CFLP §J.48.9.
In March 2003, Frankie Valli was hospitalized for “heart problems.” During that confinement, he talked to his wife, Randy, about buying a $3.75 million life insurance policy and naming her as the sole owner and beneficiary of the policy. Frankie soon bought that policy using community funds, and subsequently paid the policy premiums with money from the couple’s joint bank account. Frankie and Randy separated in September 2004, and began disso proceedings. At their disso trial, Randy testified that Frankie and his business manager had assured her that she was the owner of the life insurance policy. Frankie testified that he wasn’t contemplating a separation when he bought the policy and he put it in Randy’s name with the understanding that she would take care of their children after his death. The trial court determined that the policy was community property because it was purchased during marriage with community funds. The court awarded the policy to Frankie and ordered him to pay Randy $182,500 for her interest in the cash value of the policy at the time.
Randy appealed, claiming that the policy was her separate property because Frankie put it in her sole name, thereby changing its character from community to separate property. Randy countered that he hadn’t made a transmutation by putting the policy in Randy’s name because that action didn’t comply with the written declaration requirement for transmutations. On appeal, the Second District found that the transmutation statutes were irrelevant because Frankie bought the policy in a third party transaction. The panel concluded that the form of the title presumption controlled; thus, the policy was Randy’s separate property.
The California Supreme Court granted review and reversed the Second District.
His, hers, and theirs . . .
The justices noted that Randy and Frankie agreed that the policy was purchased during marriage with community funds. They were arguing about whether the policy was community property or separate property. Randy contended that the policy became her separate property when Frankie put it in her name. The written declaration requirement in the transmutation statutes did not apply to that action, she argued, because it was part of a third party transaction between Frankie and the insurance company and not an interspousal transaction to which the transmutation statutes would apply. Frankie, on the other hand, contended that no transmutation had taken place because the written declaration requirement was not met.
The passing of pillow talk . . .
The justices emphasized that the Legislature added the writing requirement to the transmutation statute in order to remedy proof problems that arose under the former law, which permitted often-unreliable evidence from oral statements to be admitted to show that a transmutation had occurred. They were not convinced, however, that making the transmutation statute applicable to interspousal transactions, but not to third-party transactions was in keeping with the Legislature’s intent. Moreover, it could produce “arbitrary and irrational results that the Legislature could not have intended.” For example, a husband might buy his wife a very expensive diamond necklace from a local jeweler with community funds and then wait until her birthday to give it to her. The necklace would be community property until the husband gave it to the wife in an interspousal transaction, when it would become subject to the transmutation requirements. On the other hand, if the husband and wife went to the jewelry store together, he bought her the necklace with community funds, and she wore it home, the transmutation statute would not apply because the transaction was part of one purchase from a third party. And, the justices found it “difficult to conceive any justification for treating these two hypothetical scenarios differently.” Besides, the panel said if, as Randy claimed, Frankie’s using community funds to buy the policy in her name made the policy her separate property, Frankie would have made a gift of the policy to her, and the transmutation statutes would apply to that gift.
What we have here is a failure to persuade . . .
The panel was aware that in cases such as In re Marriage of Campbell (1999) 74 Cal.App.4 th 1058, 88 Cal.Rptr.2d 580, 1999 CFLR 8301, 1999 FA 918, and In re Marriage of Cross (2001) 94 Cal.App.4 th 1143, 114 Cal.Rptr.2d 839, 2002 CFLR 8933, 2002 FA 1029, courts have described a transmutation as “‘an interspousal transaction or agreement,’” but neither of those cases held that a third party transaction could not be a transmutation because it was not an interspousal transaction. The justices found that the first case to make that distinction was In re Summers (9 Cir 2003) 332 F.3d 1240, 2003 CFLR 9390, a bankruptcy case in which the federal court found that transmutation requirements did not apply to a transfer of real property between a third party and a husband and wife who took joint title. Then, in In re Marriage of Brooks & Robinson (2008) 169 Cal.App.4 th 176, 86 Cal.Rptr.3d 624, 2009 CFLR 11113, 2008 FA 1371, the court declined to find a transmutation where the spouses bought a house during marriage, but took title in the wife’s name, reasoning that the property was acquired in a third party transaction and not an interspousal one. The high court found those cases unpersuasive because they failed to take into account the legislative intent regarding transmutations or to present a reasoned basis for exempting third party transactions, and were inconsistent with other cases that did not make such an exemption. Summing up, the justices rejected the notion that third party transactions are exempt from the application of transmutation statutes, as the lower court had determined. Accordingly, the panel held that the Second District erred by finding that the transmutation statute was irrelevant and by relying on the form the title presumption. Finding no evidence that the parties complied with the written declaration requirement of that statute, the justices determined that the insurance policy was community property.
And one more thing . . .
In a separate concurrence, Justice Chin, joined by Justices Corrigan and Liu, opined that Ev C §662, the form of title presumption, does not trump Fam C §760 [all property acquired during marriage is presumed to be community property] and must yield to Fam C §760 in the characterization of property in actions between spouses.
In his concurring opinion, Justice Chin wrote separately “to discuss a threshold question that has been the primary focus of the briefs of the parties and amici curiae: What role, if any, does a common law rule codified in Evidence Code section 662 . . . have in determining, in an action between the spouses, whether property acquired during a marriage is community or separate?” We’re not surprised that this question was the primary focus of those briefs. We were surprised when the main opinion focused on the application of the transmutation statute to the purchase of the life insurance policy, since the lower court had brushed that off by saying that the statute was irrelevant. Contrary to our expectation, the main opinion is devoted to an explanation of why the statute is not irrelevant and in fact, should govern the characterization of the policy. And in doing so, the justices put to rest the notion that the transmutation statute does not apply to a third-party purchase.
Nevertheless, we think that Justice Chin’s concurring opinion is must reading for its discussion of the interplay, or lack thereof, between the common law rule of title and Fam C §760 and other Family Code statutes governing property in family law cases. For starters, the justice reminds us that the community property system, which California has always had, originated in Europe, and is not based on English common law. Therefore, there is no reason to suppose that a statute based on common law, such as Ev C §662, should trump the Family Code statutes when dealing with marital property characterization. We predict that the reasoning in Justice Chin’s concurring opinion will be relied on in many future cases dealing with marital property characterization and will prove to be as important as the main opinion in this case.