On April 3, 2014, the California Supreme Court heard oral arguments in the matter In re Marriage of Valli, S193990. The major legal question presented to the Court is whether a life insurance policy purchased with community funds, but placed in the wife’s name, is community property or the wife’s separate property upon dissolution of the marriage.

The facts are simple. Music legend Frankie Valli was experiencing heart problems and purchased a $3.75 million life insurance policy so that his wife and children would be taken care of in case of his death. To avoid probate, he named his wife Randy as “owner” of the policy. The premiums on the policy were paid from community property funds. Eighteen months after the policy was purchased, Frankie and Randy filed for divorce. At the time of their trial, the life insurance policy had a cash value of $365,000. Frankie contended that the policy was community property and should be split equally. Randy contended that because she was the owner and sole beneficiary of the policy, it constituted her separate property.

The trial court determined that the policy was community property because it was acquired during marriage and paid for with community property funds. The Court of Appeal reversed, finding that the policy was Randy’s separate property. In re Marriage of Valli, 195 Cal. App. 4th 776 (2011).

The trial court had pointed to Family Code Section 760. Under that statute, property titled in one spouse’s name is generally presumed to be community property, and the spouse claiming it is separate property must rebut the presumption by tracing to separate property funds or by proving a transmutation. See In re Marriage of Haines, 33 Cal. App. 4th 277, 291 (1995). The trial court noted that Randy had not requested a finding of transmutation and that there was no evidence of transmutation. In re Marriage of Valli, 195 Cal. App. 4th at 729.

While recognizing this principle, the Court of Appeal held that Evidence Code Section 662—which provides that “[t]he owner of the legal title to property is presumed to be the owner of the full beneficial title”—trumps Family Code Section 760. That’s because the presumption established by Section 662 may be rebutted only by “clear and convincing proof,” whereas Section 760 can be overcome by a “preponderance of the evidence.” Id. at 731-32. The Court of Appeal further stated that the Family Code Section 852 requirements for transmutation did not apply because the policy was purchased from a third party and was not a transaction between spouses. Id. at 735.

The Supreme Court must now decide whether community property concepts embodied in the Family Code should overcome common law title presumptions set forth in Evidence Code Section 662. The Supreme Court must also decide whether the transmutation requirements apply to the purchase of life insurance policies from a third party.