Marriage of Saslow, In re

• Decision Date: 31 December 1985
• Docket Number: S.F. 24613
• Citation: 221 Cal.Rptr. 546,40 Cal.3d 848,710 P.2d 346
• Court: California Supreme Court
• Parties: , 710 P.2d 346, 54 USLW 2419 In re the MARRIAGE OF Eileen K. and Ernest J. SASLOW. Eileen K. SASLOW, Appellant, v. Ernest J. SASLOW, Respondent.

Page 546

221 Cal.Rptr. 546

40 Cal.3d 848, 710 P.2d 346, 54 USLW 2419

In re the MARRIAGE OF Eileen K. and Ernest J. SASLOW.

Eileen K. SASLOW, Appellant, v. Ernest J. SASLOW, Respondent.

S.F. 24613.

Supreme Court of California.

Dec. 31, 1985.

Grant D. Telfer, Diane S. Gersten, Frederick A. Meiser, Jr. and Howard D. Finkelstein, San Diego, for appellant.

Goldberg, Fisher, Randall & Quirk, Roger D. Randall and Edward J. Quirk, Bakersfield, for respondent.

BIRD, Chief Justice.

Where disability insurance policies are purchased during marriage with community funds, but the benefits are received after the parties have separated, are the benefits the separate property of the disabled spouse?

I.

After 18 years of marriage, Eileen and Ernest Saslow (hereafter wife and husband respectively) separated in 1975.

During the marriage, the husband purchased several disability insurance policies payable upon his disability. He paid the premiums with community funds. Although the couple owned several orange groves, a residence, some stocks, and eight life insurance policies, the husband did not invest in a retirement or pension plan.

Prior to 1972, the husband had an active private medical practice as an allergist. He was forced to close his office in 1972 because of long-standing psychological problems. The deposition testimony of his psychiatrist indicated that the husband, who was 59 years old at the time of trial in 1978, was likely to remain disabled for the rest of his life. The wife suffers from Hodgkin's disease.

When he was unable to continue his practice and while the parties were still married, the husband began to receive benefits payable under the disability policies. The benefits totaled $2,181 per month until the husband reached the age of 60, when one of the policies expired and the benefits were reduced to $1,881 per month. A second policy will expire and the benefits from another policy will decrease when the husband reaches age 70, reducing the monthly payments to $631. When the husband reaches age 75, a third policy will expire and the benefits will be reduced to $506 per month. That amount will be payable each month until the husband's death.

The trial court entered an interlocutory decree of dissolution on May 15, 1978, but reserved jurisdiction to determine the division of property. After an eight-day trial, the court found the bulk of the couple's substantial assets to belong to the community and divided them equally. The future benefits to be paid to the husband from the disability policies were found to be his separate property. He was ordered to pay half of the benefits as spousal support.

The wife's primary argument on appeal is that the benefits from the disability policies, which were purchased with community funds, are community property and must be divided equally between the parties upon dissolution. She notes, correctly, that although she is receiving spousal support equivalent to half of the disability payments, "[spousal support] lies within the discretion of the trial court and may be modified with changing circumstances: 'the spouse "should not be dependent on the discretion of the court ... to provide her with the equivalent of what should be hers as a matter of absolute right." ' " (In re Marriage of Stenquist (1978) 21 Cal.3d 779, 787, fn. 8, 148 Cal.Rptr. 9, 582 P.2d 96, hereafter Stenquist; accord In re Marriage of Brown (1976) 15 Cal.3d 838, 848, 126 Cal.Rptr. 633, 544 P.2d 561.)

The wife also argues that the trial court abused its discretion in finding that (1) the proceeds from a certain trust were community property, (2) several life insurance policies owned by the wife were community property, (3) the wife was not entitled to credit for funds loaned to the husband from her separate property prior to and early in the marriage, and (4) she was not entitled to reimbursement for allegedly separate property funds spent on community debts after separation. Finally, the wife contends that the trial court abused its discretion in failing to order the husband to account for certain community funds spent on stock and mutual fund transactions.

In a cross-appeal, the husband argues that the trial court abused its discretion in failing to hold that the postseparation increase in cash value of three life insurance policies is his separate property.

II.

Although this court has twice addressed the status of a disability pension in the context of a marital dissolution, the court has never directly addressed the status of benefits from private disability insurance policies purchased with community funds. ¹

In In re Marriage of Jones (1975) 13 Cal.3d 457, 119 Cal.Rptr. 108, 531 P.2d 420 (hereafter Jones), the issue was whether a military disability pension received by an ex-serviceman, who had not acquired a vested right to retirement pension benefits, was his separate property or the property of the community. This court held that the disability pension was his separate property. (Id., at p. 461, 119 Cal.Rptr. 108, 531 P.2d 420.)

However, the rationale underlying the Jones decision has been substantially eroded, leaving it with little continued validity. In Jones, this court held that a serviceman's right to disability pay acquired before he had a vested right to a retirement pension was not a community asset. (Jones, supra, 13 Cal.3d at p. 461, 119 Cal.Rptr. 108, 531 P.2d 420.) At the time Jones was decided, only vested rights to retirement benefits were considered to be community assets. (French v. French (1941) 17 Cal.2d 775, 778, 112 P.2d 235.) The French case was overruled in In re Marriage of Brown, supra, 15 Cal.3d at p. 851, 126 Cal.Rptr. 633, 544 P.2d 561. The holding in Brown "undermine[d] the fundamental premise of Jones: that the award of a serviceman's 'disability' pension to the serviceman as his separate property would not impair any community interest of his spouse." (Stenquist, supra, 21 Cal.3d at p. 785, 148 Cal.Rptr. 9, 582 P.2d 96.)

The Jones court also characterized disability payments as more analogous to personal injury damages than to retirement pay. (Jones, supra, 13 Cal.3d at pp. 462-464, 119 Cal.Rptr. 108, 531 P.2d 420.) At the time Jones was decided, personal injury damages received after the couple separated were the separate property of the injured spouse. (Id., at pp. 462-463, 119 Cal.Rptr. 108, 531 P.2d 420; Washington v. Washington (1956) 47 Cal.2d 249, 254, 302 P.2d 569; former Civ.Code, § 5126.) ² Here, too, the law has changed.

Civil Code section 5126, which governs the treatment of personal injury damages in dissolution proceedings, was amended in 1979. (Stats.1979, ch. 638, § 3, p. 1971.) As a result, personal injury damages from a cause of action which arises during the marriage are now classified as a community asset, even if they are received after separation. ³ Hence, another fundamental premise of the Jones decision is no longer valid. ⁴

This court most recently addressed the status of a disability retirement pension in In re Marriage of Stenquist, supra, 21 Cal.3d 779, 148 Cal.Rptr. 9, 582 P.2d 96. In Stenquist, the husband lost a limb, but remained in military service for 17 more years. At retirement, the husband, whose right to a retirement pension had vested was entitled to take regular "retirement" pay at the rate of 65 percent of his basic pay or "disability" pay at the higher rate of 75 percent. Assuming that he would prefer the higher rate, the Army began to pay him disability benefits.

In the dissolution proceeding which was commenced after the husband's retirement, the trial court ruled that the portion of his disability pension benefits that was equivalent to what he would have been entitled to under the ordinary retirement pension constituted a community asset. (Id., at p. 783, 148 Cal.Rptr. 9, 582 P.2d 96.) Only that portion of the disability payments which could be attributed to military service prior to the marriage and the portion of the payments which exceeded the regular retirement pension were held to be his separate property. (Id., at p. 788, 148 Cal.Rptr. 9, 582 P.2d 96.)

In affirming the trial court's disposition, this court articulated two rationales. First, it held that it could not "permit the serviceman's election of a 'disability' pension to defeat the community interest in his right to a pension based on longevity." (Stenquist, supra, 21 Cal.3d at p. 786, 148 Cal.Rptr. 9, 582 P.2d 96.) Such a result would "violate the settled principle that one spouse cannot, by invoking a condition wholly within his control, defeat the community interest of the other spouse." (Ibid.) It would unjustly deprive the wife of a valuable property right " 'simply because a misleading label has been affixed to [the] husband's pension fund benefits.' " (Id., at pp. 786-787, 148 Cal.Rptr. 9, 582 P.2d 96.)

Second, the Stenquist court discussed the purposes of a military disability pension. Such pensions were said to function in part to compensate the veteran for lost earnings and personal suffering caused by the disability. To that extent they were held to constitute separate property. (Stenquist, supra, 21 Cal.3d at pp. 787-788, 148 Cal.Rptr. 9, 582 P.2d 96.)

However, the court recognized that a "disability" pension received later in life might function principally as a retirement pension. (Ibid.) Indeed, the court found that the "primary objective" of the disability pension in Stenquist was to provide retirement support. Therefore, it held that the portion of the disability pension that was equivalent to the regular retirement pension was community property. (Id., at pp. 788-789, 148 Cal.Rptr. 9, 582 P.2d 96.)

Following the Stenquist decision, several Courts of Appeal have held that the portion of employer-provided disability benefits that functions as retirement pay must be treated as community property. (In re Marriage of Justice (1984) 157 Cal.App.3d 82, 204 Cal.Rptr. 6; In re Marriage of Pace (1982) 132...