California Family Law Report

Case of the Month Archive

It’s irrelevant that disability benefits function as wage replacement . . .

In reversal, Sixth District holds that disability benefits paid to wife during marriage from private disability policy that she acquired and fully paid before marriage are her separate property

In June 1991, pediatrician Belita Rossin bought a private disability policy that would pay her benefits if she was disabled from practicing medicine. In January 1997, Belita gave up her medical practice due to “mental health reasons”; she began receiving monthly disability benefits in April. According to the terms of the policy, Belita did not have to pay premiums while she was disabled.

Belita married Richard Rossin in July 2000. During marriage, she worked as a self-employed music teacher. The marriage did not succeed, and the couple separated in March 2005. When Belita filed for divorce in July 2005, her disso petition claimed, among other things, that her monthly disability payments were her separate property. In opposition, Richard contended that the benefits Belita received during marriage were community property. In September 2006, the couple stipulated that their dispute over the characterization of the disability benefits would be resolved by the trial court pursuant to their written briefs. In a subsequent statement of decision, the court found that the disability benefits that Belita received during marriage were community property because they “ ‘were intended to replace or substitute for salary/wages.’ ” The disso judgment that was issued in September 2007 echoed that decision regarding the disability benefits.

Belita appealed, and the Sixth District reversed and remanded.

Back to the basics . . .
The justices began by noting that as explained in In re Marriage of Haines (1995) 33 Cal.App.4th 277, 39 Cal.Rptr.2d 673, 1995 CFLR 6686, 1995 FA 693, under Fam C §760, all property that either spouse acquires during marriage is presumed to be community property, except for gifts, inheritances, or property traced to a separate-property source. And per Fam C §770, a spouse’s separate property includes property owned before marriage; property acquired during marriage by gift or inheritance; rents, issues, and profits earned by such property; and post-separation earnings and accumulations. When characterizing property as separate, community, or quasi-community, the trial court looks at when the property was acquired, applies any relevant presumptions, and considers whether a transmutation has occurred. “ ‘Perhaps the most basic characterization factor,’ ” the panel emphasized, “ ‘is the time when property is acquired in relation to the parties’ marital status’ ” (quoting Haines). The justices also recognized that it may be appropriate to apportion community and separate interests when “a property right is earned partly during marriage,” but that’s a process separate from characterization of the property interest.

Timing is everything . . .
When the justices looked to see when Belita acquired her disability policy, they saw that she acquired and paid for it before she married Richard. Moreover, none of the premiums were paid during marriage. The panel recognized that this was a case of first impression, as no case has dealt with the characterization of the right to disability benefits that accrued before marriage. But Belita acquired the right to receive the benefits before marriage, so the timing of that right fixed the character of the benefits as her separate property. The justices reasoned that since the timing of the right to receive benefits was “the critical question,” the fact that Belita had received some benefits during marriage was irrelevant. It was equally irrelevant that the benefits functioned as wage replacement, a fact that had swayed the trial court. The panel pointed out that In re Marriage of Saslow (1985) 40 Cal.3d 848, 221 Cal.Rptr. 546, 710 P.2d 346, 1986 CFLR 3010, 1986 FA 202, which the lower court found persuasive, was not applicable here because it involved apportionment of disability benefits purchased with community funds; apportionment was unnecessary here because no such funds were used to purchase Belita’s policy. The justices also noted that per In re Marriage of Elfmont (1995) 9 Cal.4th 1026, 39 Cal.Rptr.2d 590, 891 P.2d 136, 1995 CFLR 6709, 1995 FA 696, disability benefits “ ‘may be treated as community property only to the extent they were “purchased during marriage with community funds” ’ ” (quoting Saslow). Summing up, the justices concluded that the disability benefits that Belita received during marriage from the private disability policy she acquired before marriage with separate funds are her separate property. Accordingly, they reversed the order and remanded, with instructions to the trial court to award those benefits to Belita as her separate property.