June 01, 2011
“BEWARE HOW TITLE IS TAKEN . . .”
. . . a quote from Roy Paul, Superior Court Judge after reading In re Marriage of Frankie and Randy Valli 5/18/11, B222435 (hereafter “Valli”). How many times would you have to say that for people to get the point? We have had numerous cases the past 5 years regarding the importance of making clear the intent to transmute the character of an asset if the intent of the parties is to change the character from community property to separate property or from separate property to community property. Something more than just the blanket statement of how the asset was to vest was necessary to make the change clearly intentional and thus enforceable.
In Valli, Frankie (“Husband”) is having some heart problems and determines to purchase life insurance for the agreed purpose of making certain that Randy (“Wife”) and three children are taken care of in the event of husband’s death. Husband and his manager informed Wife of the plan to purchase the $3.75 million policy on husband’s life with Wife as owner and beneficiary. That was the testimony at trial.
At the time of the divorce, the policy had a cash surrender value of $365,032. The trial court found that the policy was purchased during the marriage and the premiums were paid during the marriage. Family Code §770 (a) defines separate property, §760 defines community property and gives the general presumption of community property.
Evidence Code §662 provides that “[t]he 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.” This title presumption is pursuant to a public policy favoring stability of titles to property (In re Marriage of Fossum (2011) 192 Cal.App.4th 3336). The specific presumption of Evidence Code §662 trumps the general presumption of Family Code §760.
“. . . the mere fact that property was acquired during marriage does not . . . rebut the form of title presumption; to the contrary, the act of taking title to property in the name of one spouse during marriage with the consent of the other spouse effectively removes that property from the general community property presumption. In that situation, the property is presumably the separate property of the spouse in whose name title is taken.” (In re Marriage of Brooks & Robinson (2008) 169 Cal.App.4th 176).
The court distinguished the “transmutation” cases as applying to situations where the vesting of an asset is changed (Husband and Wife own an asset and put it into just one of their names) from the situations, as in the instant case, where community property funds were used to acquire a new asset, in Wife’s name and Evidence Code §662 will apply absent clear and convincing evidence to the contrary.
Bottom line, in years past it was good estate planning to “cross-own” life insurance. Wife owned the policy on Husband and paid premiums from her account; and Husband owned the policy of Wife’s life and paid the premiums from his account. So people did this intentionally for estate planning and estate tax purposed. YOU CANNOT INTEND SOMETHING FOR ONE PURPOSE AND THEN DENY IT FOR ANOTHER. If you do something for estate planning, you cannot avoid it in a divorce.
Frankie is hung by his own petard. As Judge Paul advised, “Beware of how title is taken.”
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John T. Anderson, Section Chair
Certified Specialist in Probate, Trust and Estate Planning
By the California State Bar Board of Legal Specialization
Copyright © 2011 by John T. Anderson
All articles by John T. Anderson may be copied for personal use, only. All articles or outlines from others may be used only with their personal authorization. Any approval is for personal use, only, and for non-commercial purposes.
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