In a divorce, all property must be characterized as either separate or community property so that the latter may be divided equally (in value) in either a written settlement agreement or, if the parties cannot agree on the division, then by the family court judicial officer at trial.
In the division of the community property of singer Franki Valli and his wife, Randi, in Marriage of Valli (2014), Randi argued that a $3.5 million life insurance policy purchased by Frankie with community funds from their jointly-held bank account was Randi’s separate property because Frankie placed the policy insuring his life in Randi’s name alone. While she did not dispute that the policy was purchased with community funds from a jointly-held bank account, Randi testified at trial that Frankie was having “heart problems,” and he and his business manager told her that they would make her the policy’s owner.
Randi also argued that the transmutation requirements apply only to interspousal transactions but not to a transaction for the acquisition of property by a spouse from a third party such as an insurance company. (She supported this argument with appellate case law to that effect.) Additionally, she argued that Evidence Code section 662’s title presumption shifts the burden of proof to Frankie to prove by clear and convincing evidence that the policy is not Randi’s separate property.
Frankie testified that he put everything in Randi’s name, figuring “she would take care and give to the kids what they might have coming,” and that he had no plans to separate from Randi at the time he purchased the policy.
The family court judicial officer determined that the life insurance policy should be characterized as community property because it was acquired during marriage with community funds. The judicial officer then awarded the policy to Frankie but ordered him to buy out Randi’s interest in the policy’s cash value by paying her one-half of that cash value as of the date of trial ($182,500.00).
Randi appealed to the Second District, Division Five, Court of Appeal, which reversed the family court judicial officer, holding that the insurance policy was Randi’s separate property because of Evidence Code section 662’s title presumption and because the transmutation requirements do not apply to third party transactions.
Frankie then appealed to the Supreme Court of California.
Relevant family law
A court’s characterization of the parties’ property – as community property or separate property – determines the division of the property between spouses. (Marriage of Benson (2005).)
Property that a spouse acquires before the marriage is that spouse’s separate property (Family Code section 770(a)(1)) and property a spouse acquires during the marriage is community property (id.; Family Code 760) unless it is (1) traceable to a separate property source (Marriage of Lucas (1980), (2) acquired by gift or bequest (Family Code section 770(a)(2)), or (3) earned or accumulated while the spouses are living separate and apart. (id.; Family Code section 771(a)).
A spouse’s claim that property acquired during the marriage is separate property must be proven by a preponderance of the evidence. (Marriage of Ettefagh (2007).)
Spouses may, through a transfer or an agreement, transmute (i.e., change) the character of property from community to separation of from separate to community. (Family Code section 850.) 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.” (id.; Family Code section 852(a).) An “express declaration” means a writing signed by the party adversely affected must state that the character or ownership of the property at issue is being changed. (Estate of McDonald (1990).) The “express declaration” requirement “does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible article 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.” (Family Code section 852(c).)
The 1984 transmutation statute “blocks efforts to transmute marital property based on evidence – oral, behavioral, or documentary – that is easily manipulated and unreliable.” (Marriage of Benson (2005).)
The Supreme Court of California rejected Randi’s argument that spousal purchases from third parties are exempt from transmutation requirements because some may be of substantial value or not of a personal nature and thus subject to the “express declaration” requirement. The Supreme Court stated that it need not and does not decide whether Evidence Code section 662’s form of title presumption ever applies in marital dissolution proceedings because it does not apply when it conflicts with the transmutation statutes. (Marriage of Barneson (1999).)
Justice Chin (2 justices joining) wrote separately that there are two competing presumptions – that of Family Code section 760 (the general community property presumption) and of Evidence Code section 662 (the title presumption), and both presumptions cannot be given effect because they conflict. In his view and that of all professors and specialists providing amicus briefs, the general community property presumption controls property acquired during the marriage between spouses. Evidence Code section 662 “plays no role” because the community property system has always been a part of California law through the treaty of 1848 and the 760 presumption is perhaps the most fundamental principle of California’s community property law. (Wilson v. Wilson (1946).) Evidence Code section 662 “may not nullify this fundamental presumption whenever, as is often the case, the contested property is in the name of one of the spouses.” Applying the 662 presumption “‘would subvert basic tenets of California family law'” (quoting AAML and ACFLS).
Further support is provided by this Court’s 1995 conclusion that the 662 presumption must yield to the requirement that a husband and wife occupy a confidential relationship in their transactions with each other. (Marriage of Haines (1995).) The presumption of undue influence exists to protect a married person who is taken advantage of in interspousal transactions.