Valli v. Valli (In re Valli)

• Decision Date: 15 May 2014
• Docket Number: No. S193990.,S193990.
• Citation: 58 Cal.4th 1396,171 Cal.Rptr.3d 454,324 P.3d 274
• Parties: In re the MARRIAGE OF Frankie and Randy VALLI. Frankie VALLI, Respondent, v. Randy VALLI, Appellant.
• Court: California Supreme Court

58 Cal.4th 1396

324 P.3d 274

171 Cal.Rptr.3d 454

In re the MARRIAGE OF Frankie and Randy VALLI.Frankie VALLI, Respondent,

v.Randy VALLI, Appellant.

No. S193990.

Supreme Court of California

May 15, 2014.

Jaffe and Clemens, William S. Ryden, Beverly Hills, and Nancy Braden–Parker for Appellant.

Garrett C. Dailey, Oakland; Walzer & Melcher, Peter Walzer and Christopher C. Melcher, Woodland Hills, for Respondent.

Charlotte K. Goldberg and Herma Hill Kay as Amici Curiae on behalf of Respondent.

Grace Ganz Blumberg and Herma Hill Kay as Amici Curiae on behalf of Respondent.

Sideman & Bancroft and Diana E. Richmond, San Francisco, for Northern California Chapter of the American Academy of Matrimonial Lawyers and the Association of Certified Family Law Specialists as Amici Curiae on behalf of Respondent.

Law Office of Kim W. Cheatum and Kim W. Cheatum, San Diego, as Amici Curiae on behalf of Respondent.

KENNARD, J.^*

During a marriage the husband used community property funds to purchase an insurance policy on his life, naming his wife as the policy's only owner and beneficiary. Upon dissolution of the marriage, is the life insurance policy community property or the wife's separate property? We conclude that, unless the statutory transmutation requirements have been met, the life insurance policy is community property. Because the Court of Appeal reached a different conclusion, we reverse that court's judgment.

I

After a 20–year marriage, Frankie Valli (husband) and Randy Valli (wife) separated in September 2004. Their three children were minors at the time of separation but have since become adults. Before the separation, in March 2003, husband used community property funds from a joint bank account to buy a $3.75 million insurance policy on his life, naming wife as the sole owner and beneficiary. Until the parties separated, the policy premiums were likewise paid with community property funds from a joint bank account.

At the marital dissolution proceeding, wife testified that she and husband, while he was in the hospital for "heart problems," had talked about buying a life insurance policy. Wife said that husband and their business manager, Barry Siegel, told her that they would make her the policy's owner. Husband testified that he "put everything in [wife'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 wife when he bought the policy.

The trial court ruled that the insurance policy was community property because it was acquired during marriage with community funds. The court awarded the policy to husband and ordered him to buy out wife's interest in the policy by paying her $182,500, representing one-half of the policy's cash value at the time of trial. The Court of Appeal reversed, holding that the insurance policy was wife's separate property.

II

In a marital dissolution proceeding, a court's characterization of the parties' property—as community property or separate property—determines the division of the property between the spouses. ( In re Marriage of Benson (2005) 36 Cal.4th 1096, 1102, 32 Cal.Rptr.3d 471, 116 P.3d 1152 ; In re Marriage of Haines (1995) 33 Cal.App.4th 277, 291, 39 Cal.Rptr.2d 673.) Property that a spouse acquired before the marriage is that spouse's separate property. ( Fam.Code, § 770, subd. (a)(1).) Property that a spouse acquired during the marriage is community property (id., § 760 ) unless it is (1) traceable to a separate property source ( In re Marriage of Lucas (1980) 27 Cal.3d 808, 815, 166 Cal.Rptr. 853, 614 P.2d 285 ; In re Marriage of Mix (1975) 14 Cal.3d 604, 610, 612, 122 Cal.Rptr. 79, 536 P.2d 479 ), (2) acquired by gift or bequest ( Fam.Code, § 770, subd. (a)(2) ), or (3) earned or accumulated while the spouses are living separate and apart (id., § 771, subd. (a) ). A spouse's claim that property acquired during a marriage is separate property must be proven by a preponderance of the evidence. ( In re Marriage of Ettefagh (2007) 150 Cal.App.4th 1578, 1591, 59 Cal.Rptr.3d 419 ; see Estate of Murphy (1976) 15 Cal.3d 907, 917, 126 Cal.Rptr. 820, 544 P.2d 956 [a spouse asserting that property acquired by purchase during a marriage is separate property must prove that the property is not community].)

Here, as mentioned earlier, husband during the marriage took out a $3.75 million insurance policy on his life, designating wife as the policy's sole owner and beneficiary. The parties do not dispute that the policy was purchased with community property funds from a joint bank account. What they do dispute is the policy's characterization. Husband argues that the policy is community property because it was purchased during the marriage with community funds. (See Tyre v. Aetna Life Ins. Co. (1960) 54 Cal.2d 399, 402, 6 Cal.Rptr. 13, 353 P.2d 725 ["A policy of insurance on the husband's life is community property when the premiums have been paid with community funds."]; Grimm v. Grimm (1945) 26 Cal.2d 173, 175, 157 P.2d 841 [same].) Wife argues that the policy is her separate property because husband arranged for the policy to be put solely in her name, thereby changing the policy's character from community property to separate property.

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. ( Fam.Code, § 850.) A transmutation of property, however, "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., § 852, subd. (a).) 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. ( Estate of MacDonald (1990) 51 Cal.3d 262, 272, 272 Cal.Rptr. 153, 794 P.2d 911.) The "express declaration" requirement "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. " ( Fam.Code, § 852, subd. (c), italics added.)

Here, husband contends that because the express written declaration requirement was not satisfied, his act of placing the life insurance policy in wife's name did not transmute the policy, which was purchased during the marriage with community funds, into a separate property asset of wife. Wife argues that the transmutation requirements apply only to transactions between spouses, and not to one spouse's acquisition of property from a third party. Here, she argues, the only transaction was between husband and the insurance company issuing the policy. Because there was no interspousal transaction, in her view the transmutation requirements do not apply.

The Legislature adopted the statutory transmutation requirements in 1984 upon a recommendation of the California Law Revision Commission. ( Estate of MacDonald, supra, 51 Cal.3d at p. 268, 272 Cal.Rptr. 153, 794 P.2d 911.) In its report to the Legislature, the commission observed that under then existing law it was " ‘quite easy for spouses to transmute both real and personal property’ " because a transmutation could be proved by evidence of an oral agreement between the spouses or by " ‘implications from the conduct of the spouses.’ " ( Id. at p. 269, 272 Cal.Rptr. 153, 794 P.2d 911.) This " ‘rule of easy transmutation ... generated extensive litigation in dissolution proceedings' " where it encouraged spouses " ‘to transform a passing comment into an "agreement" or even to commit perjury by manufacturing an oral or implied transmutation.’ " (Ibid. ) As this court has concluded, therefore, in adopting the statutory transmutation requirements the Legislature intended "to remedy problems which arose when courts found transmutations on the basis of evidence the Legislature considered unreliable." (Ibid.; accord, In re Marriage of Benson, supra, 36 Cal.4th at p. 1106, 32 Cal.Rptr.3d 471, 116 P.3d 1152 [the transmutation statute "blocks efforts to transmute marital property based on evidence—oral, behavioral, or documentary—that is easily manipulated and unreliable"].)

The distinction that wife here urges us to draw between interspousal property transactions (which are subject to the transmutation statutes) and property acquisitions from third parties (which would not be subject to those statutes even when it has the claimed effect of changing community property funds to a separate property asset or vice versa) bears no relation to these legislative concerns, and it produces arbitrary and irrational results that the Legislature could not have intended. A few hypothetical examples illustrate this point.

Suppose a husband, shopping at a jewelry store, uses community funds to buy a particularly expensive diamond necklace that is "substantial in value taking into account the circumstances of the marriage" Fam.Code, § 852, subd. (c) ), intending to give it to his wife a few days later as a birthday present. Because of the particular necklace's value in comparison to the particular couple's financial situation, the gift exception does not apply. Under the analysis urged here by wife, the transmutation statutes would not apply to the necklace's purchase because it was a third party transaction with the jewelry store. But because the husband used community funds to buy the necklace and did not immediately transfer title or possession to the wife, the purchase itself did not cause any transmutation, and the necklace would be community property at least until the wife's birthday. On that day, the husband's act of giving the necklace to the wife, together with the wife's act of accepting the husband's gift, would be an interspousal transaction to which the...