In re the Marriage of BECKY and GARY BURWELL. BECKY BURWELL, Movant and Appellant,
CYNTHIA BURWELL, Objector and Appellant.
CERTIFIED FOR PARTIAL FOR PARTIAL PUBLICATION[*]
APPEAL from a judgment of the Superior Court of Kern County. No. S1501-FL-591767 Susan M. Gill, Judge.
Bowman and Associates, Stacy H. Bowman; Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, Catherine E. Bennett, and Thomas V. DeNatale, Jr., for Objector and Appellant.
Stephen Temko for Movant and Appellant.
Poochigian, Acting P.J.
Are the proceeds of a term life policy community property or separate property of the spouse who pays the final premium? Our answer is an all too familiar one: it depends. We hold that the characterization “will depend on the … premium for the final term of the policy.” (Minnesota Mut. Life Ins. Co. v. Ensley (9th Cir. 1999) 174 F.3d 977, 983 (Minnesota Mut. Life Ins. Co.).) The effect of the rules governing characterization of term life insurance proceeds depends on multiple factors, including whether the policy contains certain contractual provisions, and the insurability of the insured spouse. The result is an unfortunately intricate methodology for allocating proceeds of term life insurance policies. Were we free to abandon community property jurisprudence and craft a simpler holding we might do so. We are not.
Here, the trial court failed to make findings sufficient to determine proper characterization of the proceeds. Therefore, we vacate the court’s order, and remand for further factual findings and application of the rules we set forth herein.
In 1996, during the marriage of Becky J. Burwell and Gary J. Burwell, a term life insurance policy was purchased (hereafter the “term life policy” or “the policy.”) Gary was the insured and Becky was the named beneficiary until October 7, 2008.
In September 2004, Becky petitioned for dissolution of her marriage with Gary.
Automatic Temporary Restraining Orders
Gary was served with a summons along with Becky’s petition. The summons contained a number of automatic temporary restraining orders (ATROs). (See Fam. Code, § 2040; Cal. Rules of Court, rule 5.50(b).) The ATROs included the following text:
“Starting immediately, you and your spouse are restrained from: [¶] … [¶]
“2. cashing, borrowing against, cancelling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage including life, health, automobile, and disability held for the benefit of the parties and their minor child or children;
“3. transferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life; and
“4. creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or order of the court. Before revocation of a nonprobate transfer can take effect, or a right of survivorship to property can be eliminated, notice of the change must be filed and served on the other party.”
A status-only judgment of dissolution was entered in August 2005, and the court retained jurisdiction over all other issues. In November 2006,  Gary married Cynthia Burwell (Cynthia).
August 2008 Stipulated Judgment
In August 2008, Gary and Becky stipulated to a “further” judgment resolving some property issues. Though the stipulated judgment indicates that “the parties have reached an agreement with regard to the division of their marital property, ” five issues were explicitly reserved for a trial. One of the issues reserved for trial was “claims for breach of spousal fiduciary duty.”
The stipulated judgment, signed by both parties, also states:
“16. Full Disclosure of Assets and Gifts. Each party has warranted to the other that he or she has no ownership interest in or claim to any property of any kind, other than the property described in this Further Judgment, and that he or she has not made, without the knowledge of the other, any gift or transfer of community property within the past five years for less than full and adequate consideration.
“17. After-Discovered And Concealed Assets. If additional assets of a community property nature are subsequently discovered, the existence of which were in good faith unknown or forgotten by both parties, such assets shall be divided equally between the parties. All other after-discovered assets shall be divided as determined by a court of competent jurisdiction. This court specifically retains jurisdiction over all concealed or after-discovered assets.”
The judgment also fixed the separation date at September 21, 2004.
Change of Beneficiary
On October 7, 2008, Gary changed the beneficiary on the term life policy from Becky to Cynthia. Gary had not listed the policy in his preliminary or final disclosure declarations in the dissolution action. (See Fam. Code, §§ 2104, 2105.)
Trial on Reserved Issues
The trial on reserved issues contemplated by the prior stipulated judgment commenced in June 2009 before Judge John Somers and continued over several months. Several issues were adjudicated at the trial. The most contentious issue involved a community-asset business called Burwell Concrete, Inc. (BCI). The court was tasked with deciding whether approximately $2.5 million in postseparation income from BCI was community income or Gary’s separate income. The trial also dealt with claims of breach of fiduciary duty.
The court eventually issued its ruling on May 16, 2011. First, the court ruled that (1) BCI had been awarded to Gary on August 21, 2008, and (2) postseparation income from BCI prior to August 21, 2008, was community income.
The court then ruled on the breach of fiduciary duty claims as follows:
“[T]he court does not find a breach of fiduciary obligation in this case. There is no evidence that petitioner failed to meet her obligations of disclosure, or of good faith and fair dealing, in any way. Respondent’s [i.e., Gary’s] conduct is more problematic. Despite counsel’s best efforts, there were often significant delays or problems in the disclosure of relevant financial information.… The disclosure issues, while problematic, are not sufficient in the court’s view to establish breach of a fiduciary obligation in this case.”
The court also ruled that Gary owed Becky (1) $105, 195.49 in “back [spousal] support payments and interest”; (2) $125, 000 in attorney fees; (3) $1, 524, 531 in reimbursements and credits for Becky’s portion of community property less $44, 283.14 in Gary’s reimbursements; and (4) $95, 102 in previously ordered equalization payments.
Gary’s Suicide and Becky’s Civil and Probate Actions
In April 17, 2010, after trial had commenced, but before the court had issued its aforementioned ruling, Gary committed suicide. Shortly after Gary’s death, Becky filed a civil action to prevent the term life policy’s proceeds from going to Cynthia. Becky also filed a probate action seeking letters of administration for Gary’s estate.
Becky moved to consolidate the civil action with the dissolution proceeding. Cynthia opposed consolidation. In her opposition papers, Cynthia argued that there were “no remaining issues left to be determined in the family law matter.” Her opposition papers further stated that she “is not a party to the action nor does she have any real interest in the outcome.” The court denied the motion to consolidate, but ordered the civil action stayed.
Becky’s Motion Regarding the Insurance Policy
Concurrent with her motion to consolidate, Becky filed a motion seeking adjudication of the insurance policy as an omitted asset. (See Fam. Code, § 2556.) Becky contended that she was entitled to 100 percent of the proceeds. She acknowledged that she was aware of the policy when it was purchased, but assumed Gary had let it lapse.
Becky argued she was entitled to the proceeds under three legal theories. First, Gary’s purported change of beneficiary from Becky to Cynthia was void because it was made in violation of the ATROs. As a result, Becky was still the operative beneficiary under the policy. Second, Gary’s failure to disclose the insurance policy in his disclosures violated Family Code section 1101, and therefore the proceeds should be awarded entirely to Becky under subdivision (h) of that section. Third, the court retained jurisdiction over omitted community property assets under the August 2008 stipulated judgment. She argued she was entitled to half the proceeds as her share of the community asset. She also claimed the other half of the proceeds because they exceeded the amount of debt Gary owed her. These included amounts Gary allegedly owed her under the August 2008 stipulated judgment and “anticipated amounts [Gary] will owe [Becky] once Judge Somers makes his ruling [after the trial on reserved issues].” Becky subsequently filed a “Supplemental Memorandum of Points and Authorities” raising a fourth theory of recovery. In that filing, Becky argued that Gary’s purported change of beneficiary must be set aside as a fraudulent transfer under section 3439.04 of the Civil Code.
Cynthia filed briefing in opposition to the motion and her counsel appeared at oral argument. She contended that the policy was Gary’s separate property. She also argued that to the extent the ATROs apply to separate property, they conflict with Family Code section 2010. Cynthia contended that section 2010 provides that “the court has no jurisdiction over a spouse[’]s separate property.”
Court’s November 9, 2011, Order
Judge Susan M. Gill ruled on the motion in an order dated November 9, 2011.  It is from this order that both parties appeal.
The court found that Gary failed to disclose the policy and thereby violated his fiduciary duty to Becky. As a result, the policy was deemed an omitted asset and was “neither distributed in the Judgment on Reserved Issues, nor included in Judge Somers’ ruling of April 1, 2010.” Therefore, the ATROs continued to apply to the asset, and Gary’s change of beneficiary to Cynthia “is void.”
The court ruled that the policy was a community asset. The ruling contained no analysis of the characterization issue, but did cite to Estate of Logan (1987) 191 Cal.App.3d 319, 326 (Logan) and In re ...