Navigating the Maze: How California Courts Divide Life Insurance in Divorce
August 31, 2025
Divorce is complicated, and when you throw life insurance into the mix, it can feel like you’re trying to solve a puzzle with missing pieces. In California, two landmark cases, In re: Marriage of Valli and In re: Marriage of Burwell, brought much-needed clarity to the division of life insurance policies. These cases address unique situations and establish key principles for family law attorneys and their clients.
In re: Marriage of Valli: A Whole Life Policy’s True Character
The case of In re: Marriage of Valli (2014) tackled the complexities of a whole life insurance policy purchased during a marriage. A husband, while hospitalized with heart problems, used community funds to buy a whole life insurance policy. After discussions with his wife, he designated her as both the owner and beneficiary.
When the couple later divorced, the wife argued that the policy was her separate property, citing California’s Evidence Code §662, which creates a presumption of title. She contended that because the policy was in her name, it belonged to her alone. Her legal argument was that the transmutation statutes, which govern how spouses change the character of property from community to separate, only apply to direct transactions between them—not to purchases from a third party like an insurance company.
The California Supreme Court disagreed. It ruled that the Evidence Code §662 presumption of title does not override the Family Code's transmutation requirements. The Court explained that the purpose of the transmutation statutes is to prevent a "rule of easy transmutation," where community property could easily become separate property without a clear, written agreement. Allowing the wife’s argument would have undermined this very purpose. While the Court left open a small possibility for Evidence Code §662 to apply in other family law contexts, a concurring opinion from Justice Chin argued forcefully that it should never apply to property acquired during a marriage in a dispute between spouses.
The core takeaway from Valli is that simply putting an asset in one spouse’s name doesn’t automatically make it their separate property. If a whole life policy is purchased with community funds, it remains a community asset unless a valid transmutation agreement, meeting all legal requirements, states otherwise.
In re: Marriage of Burwell: Allocating Term Life Proceeds
In re: Marriage of Burwell (2013) addressed a different, and perhaps more complicated, issue: how to characterize the proceeds from a term life insurance policy. In this case, a husband purchased a term life policy during his first marriage. After a "status-only" divorce was entered (meaning the court dissolved the marriage but retained jurisdiction over property division), he changed the beneficiary to his second wife and continued paying the premiums. Tragically, he died by suicide before the property issues from his first marriage were resolved.
The court had to figure out how to divide the insurance payout between the first wife and the second. The Burwell court recognized that the community (the first marriage) had a valuable interest in the policy because it acquired the right to renew the policy at a fixed rate, often called a premium cap. The court reasoned that even though separate property funds (from the husband's second marriage) were used to pay the final premiums, the community had already secured a valuable right to a low-cost renewal.
To address this, the court created a unique formula to determine what fraction of the proceeds belonged to the community. This formula considers two factors:
- The community's role in maintaining the contractual right to a premium cap.
- The premium cap's role in allowing the separate estate to acquire the final term of coverage.
The formula is:
% of total premiums paid by community X (eff. premium discount for final term)
Actual premium paid for final term + (eff. premium discount for final term )
The court's decision in Burwell established that term life insurance proceeds can be both community and separate property, depending on several factors. The proceeds are considered entirely separate property if:
- The separate estate paid the final premium.
- The insured was still insurable at the end of the last term paid for by the community.
- The insured could have purchased a comparable policy at a comparable price when the separate estate began making payments, or the policy didn't have a premium cap when the separate estate started paying premiums.
The proceeds are considered part community and part separate if:
- The final premium was paid with mixed community and separate funds.
- The insured became medically uninsurable before beginning to pay premiums with separate property.
- The insured couldn't have purchased a comparable policy at a comparable price when they began paying with separate property.
It's important to note that the Burwell case dealt specifically with the proceeds from a term policy, not the policy itself. This highlights a larger split among California appellate courts on whether term life insurance should even be considered "property" in a divorce. Courts have held four different views on this issue, ranging from term insurance not being property at all to being divisible only in certain circumstances, such as when the insured becomes uninsurable.
What does this all mean for you?
When dealing with life insurance in a divorce, it's crucial to understand whether the policy is whole or term life and who paid the premiums. The Valli and Burwell cases demonstrate that the characterization of these assets is not always straightforward. This is why having experienced legal counsel is essential to properly navigate these complex issues and ensure a fair division of assets. Have you ever considered how the type of life insurance policy you own could affect your financial future in a divorce?
Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does create any attorney client relationship between you and the Law Offices of Kenneth U. Reyes, APC. This article is not a solicitation.
Attorney Kenneth Ursua Reyes is a Board-Certified Family Law Specialist. He was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH U. REYES, APC is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail kenneth@kenreyeslaw.com or visit our website at Kenreyeslaw.com