Friday, May 16, 2014
S.C. Says That Life Insurance Paid for With Community Funds Is Community Property
Justices Rule in Favor of Singing Legend Frankie Valli in Dispute With Ex-Wife
By KENNETH OFGANG, Staff Writer
An insurance policy paid for with community funds is community property, absent a valid transmutation agreement, regardless of who is named the owner of the policy, the state Supreme Court unanimously ruled yesterday.
The high court ruled in favor of Rock and Roll Hall of Famer Frankie Valli, leader of the Four Seasons and a recording artist and performer for more than 50 years. Los Angeles Superior Court Judge Mark Juhas had awarded the singer ownership of a $3.75 million life insurance policy and ordered him to pay now-ex-wife Randy Valli $182,500, representing one-half the cash value at the time of separation.
The singer took out the policy in March 2003. The couple separated the following year, while their children were still minors. The policy on Frankie Valli’s life named Randy Valli as the sole owner and beneficiary.
The wife testified that the couple discussed buying the policy when Frankie Valli was in the hospital for heart problems, and that his business manager, Barry Siegel, told her she would be the policy’s sole owner.
Frankie Valli said he “put everything in [his wife’s] name, figuring she would take care and give to the kids what they might have coming.” He said they had no intention of separating at the time.
Trial Judge Reversed
The trial judge ruled that the policy was community property because it was acquired during the marriage with community funds. This district’s Court of Appeal, however, ruled that the policy was the wife’s alone, because it was in her name.
The court declined to apply the transmutation rules to a transaction between a spouse and an insurance company, as opposed to one between spouses. But the state high court yesterday reversed, rejecting the distinction.
The proposed distinction, retired Justice Joyce Kennard wrote on assignment, is inconsistent with the Legislature’s intent when it wrote the transmutation statutes 30 years. It would lead to absurd results, she said.
She reasoned, for example, that if Frankie Valli and his wife had acquired the policy in joint names, but later transferred it to the wife’s name alone on advice of a financial planner, that would be an interspousal transfer to which the transmutation statutes would apply. But in the circumstances that actually occurred, she said, the statutes would not apply under the theory advanced by the wife and her counsel.
Thus, the statutes would apply, or not, based “upon the entirely fortuitous circumstance of when she acquired sole title to the insurance policy, whether during the purchase or after the purchase of the policy,” Kennard wrote. “We are unwilling to conclude the Legislature intended application of the transmutation statutes to turn on such fortuitous distinctions.”
Although all of the justices signed Kennard’s opinion, Justice Ming Chin wrote separately to emphasize that, under California family law, property acquired during a marriage is presumed to be community property, even if it’s only in one spouse’s name.
He said that presumption trumps the Evidence Code §662 presumption that ‘[t]he owner of a legal title to property is presumed to be the owner of the full beneficial title.” Justices Carol Corrigan and Goodwin Liu joined Chin’s opinion.
The case was sent back to the Court of Appeal for a ruling on issues not resolved by its earlier decision, including whether Juhas abused his discretion by denying the wife’s request that the husband be required to maintain her as beneficiary, as a form of spousal support.
Christopher Melcher, an attorney for Frankie Valli, said the ruling’s import goes beyond insurance policies, by making clear that “spouses are not changing property from separate to community or community to separate” unless they so agree in writing.
William Ryden, who argued the case for Randy Valli, said he is still hopeful his client will prevail when the case goes back to the Court of Appeal.
He said he had hoped to convince the Supreme Court that life insurance policies are a “different type of asset, because legal ownership differs from beneficial ownership.” Instead, under the high court’s ruling, “you can give up control and then undo all of that by filing for divorce.”
He agreed with Melcher, however, that the Supreme Court’s ruling will help the family law bar, by “coming up with…a bright line test of how you handle this type of an issue.”
The case is In re Marriage of Valli, 14 S.O.S. 2424.
Copyright 2014, Metropolitan News Company