Community Property Background
In California, community property law governs the division of property upon divorce. All property acquired during marriage and before legal separation is presumptively community property. All property acquired before marriage is presumptively separate property. All property acquired by gift, bequest, or devise is also considered separate property. Finally, property titled in the name of only one spouse is presumptively separate property.
Upon divorce, a court will award each spouse his or her own separate property. Each spouse will be awarded one half of the community property. In order to distribute property in accordance with community property principles, a court must determine its character and value. Courts trace back the source used to acquire particular assets when determining its character.
Frankie and Randy Valli were married in 1984. Their marriage lasted 20 years and they had three children. In early 2003, Frankie was hospitalized with heart problems. Following his hospitalization, Frankie and Randy discussed the purchase of a life insurance policy to protect Randy and the children if something were to happen to Frankie.
In 2003, Frankie purchased $3.75 million dollar policy naming Randy as policy owner and beneficiary. Payment was made from the couple’s joint account, in other words, with community property. When the couple separated in 2004, payments were made from Frankie’s separate property account.
At trial, evidence demonstrated that the value of the policy at the time of trial was about $365,000. Randy testified that Frankie told her that she would be the owner of the policy. Frankie testified that the policy was in Randy’s name so she could use it to pay college expenses for the children and ensure that everyone would be taken care of.
Randy argued that the policy was her separate property because title was taken in her name only. Frankie argued that the policy was community property because it was purchased during marriage and paid for using community funds. Ultimately, the trial court decided that the policy was community property. Frankie was awarded the policy, but ordered to pay Randy one half of its present value. Randy appealed the ruling.
The Court of Appeals reversed the decision and determined that the policy was Randy’s separate property. The court reasoned that the policy belonged to Randy because title was taken in her name only and Frankie did not provide evidence to overcome the title presumption. Randy was awarded the entire policy.
What is the moral of the story? Think twice about titling valuable assets in the name of only one spouse during marriage. It could result in the asset being awarded in its entirety to the named spouse upon divorce.