Life Insurance Purchased with Community Funds is Community Property

  The California Supreme Court reverses the Court of Appeal and holds that when community funds are used to purchase life insurance, the life insurance policy is community property—irrespective of who is named owner of the policy—unless the statutory requirements for transmutation are met. The case is Valli v. Valli

  In so holding, the Court disapproved cases that distinguished between interspousal property transactions and transactions wherein one spouse acquires property from a third party. Those decisions generally stated that a transmutation requires an interspousal transaction and that one spouse’s acquisition of an asset from a third party was therefore exempt from the statutory transmutation restrictions.

  The Court opined that such a distinction produces arbitrary and irrational results and puts the trial court to the difficult assessment of the spouses’ credibility as witnesses—a position the transmutation statutes were intended to prevent. The specific holding: “Our examination of the statutory language leads us to reject the purported exemption for spousal purchases from third parties.”

  The transmutation statutes are at Family Code sections 850 et seq. Pursuant to those statutes married persons may, through a transfer or an agreement, transmute—that is, change—the character of property from community to separate or from separate to community. Pursuant to Family Code section 852, however, a transmutation of 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.”

  To satisfy the requirement of an “express declaration,” a writing signed by the adversely affected spouse must expressly state that the character or ownership of the property at issue is being changed. The “express declaration” requirement specifically “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.”

  In her concurring opinion, Justice Chin discussed the competing presumptions regarding property contained in the Family Code and Evidence Code section 662. Family Code section 760 provides: “Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.” Family Code section 802 refers to the “presumption that property acquired during marriage is community property.” In combination, these two statutes provide a presumption that property acquired during the marriage is community property. This presumption can be overcome by a preponderance of the evidence.

  In contrast, Evidence code section 662 provides: “The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.” (italics added.)

  In reaching a different result from the Supreme Court, the lower Court of Appeal relied heavily on the presumption found in Evidence Code section 662. Since legal title to the insurance policy was in wife’s name, wife argued and the Court of Appeal found, the policy is presumed to be her separate property, a presumption that was not rebutted by clear and convincing evidence.

  Justice Chin opined that the Evidence Code may not nullify the fundamental Family Code presumption that property acquired during marriage is community property. She wrote: “In my view, as in the view of all amici curiae to appear in this case—law professors and attorneys specializing in the field—the section 760 presumption controls in characterizing property acquired during the marriage in an action between the spouses. Section 662 plays no role in such an action. The detailed community property statutes found in the Family Code, including section 760, are self-contained and are not affected by a statute found in the Evidence Code.”


   Mr. Daymude consults with clients and accepts cases between spouses, including those where issues of separate vs. community property are involved. He also drafts property agreements between spouses and domestic partners and documents interspousal property transactions. For other types of cases accepted, please scroll the Home and My Practice pages. If you are seeking a legal consultation or representation, call Michael Daymude at 818-971-9409.

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