By Professor Charlotte Goldberg
An aging music legend, Frankie Valli, suffers from heart problems. He decides to buy a $3.75 million life insurance policy so his wife and three children will be taken care of in case of his death. To avoid probate, he names his wife Randy as "owner" of the policy. The premiums on the policy are paid from community property funds. Instead of Frankie dying, Frankie and Randy divorce. At the time of their trial, the life insurance policy has a cash value of $365,000. The major legal question in the case is whether the policy is community property because it was purchased with community funds or whether the policy is wife Randy's separate property because the policy is in her name. If the policy is community property, each spouse owns one-half. If the policy is wife Randy's separate property, it belongs to her exclusively.
The trial court in the case determined that the policy was community property. The Court of Appeal reversed and found the policy was wife Randy's separate property. The Supreme Court has agreed to review the case, which has generated interest in both academia and in the Bar. The case represents a classic clash between community property concepts and common law title doctrine.
Under community property law, the conventional wisdom regarding property titled in one spouse's name is that it is presumed to be community property under Family Code §760. The spouse claiming it is separate property must rebut by tracing to separate property funds or by proving a transmutation. Here wife Randy cannot do that because it was agreed that community property funds were used to purchase the policy. However, under California Evidence Code §662, if the title indicates ownership, then Frankie would have to show otherwise by clear and convincing evidence.
The Court of Appeal held that Evidence Code §662 controlled rather than Family Code §760's community property presumption. Also, the Court of Appeal stated that the Family Code §852 requirements for transmutation did not apply because the policy was purchased from a third party and was not an interspousal transaction.
Four amicus briefs, from law professors and family law attorneys, were filed in support of Frankie Valli's arguments that the community property presumption and the Family Code transmutation requirements apply in this case. [Read the amicus brief filed by Professor Goldberg and Professor Herma Hill Kay (Berkeley).] Their arguments are that historically and philosophically community property concepts embodied in the Family Code should control not common law title as prescribed by Evidence Code §662. The Supreme Court is also called on to resolve whether the transmutation requirements apply to this transaction even though it is a purchase from a third party.
The Supreme Court decision will determine whether community property concepts will triumph over common law.