In Re Marriage of Elfmont
891 P.2d 136, 9 Cal. 4th 1026, 39 Cal. Rptr. 2d 590 (1995)
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Rule of Law:
When a term disability insurance policy is purchased with community funds during marriage but renewed with separate funds after separation, benefits resulting from a disability that occurs during a post-separation term are the separate property of the insured spouse.
Facts:
- John H. Elfmont (husband) and Edie M. Elfmont (wife) were married in 1975.
- During the marriage, John, a physician, purchased several term disability insurance policies, paying all premiums from community earnings.
- The couple also contributed to a substantial corporate pension and profit-sharing plan.
- In 1980 or 1981, John injured his back and subsequently expressed a desire to retire by age 50.
- The parties separated on May 1, 1987.
- After the separation, John continued to pay the renewal premiums for the disability policies using his separate property.
- In 1989, approximately 32 months after the separation, John became totally disabled from a lower back disorder and began receiving benefits under the policies.
Procedural Posture:
- John H. Elfmont (husband) and Edie M. Elfmont (wife) commenced a dissolution proceeding in a California trial court in August 1987.
- The trial court determined that $5,000 per month of the husband's disability benefits was community property and divided it equally, while the remaining $4,000 per month was his separate property.
- Husband, as appellant, appealed the judgment to the California Court of Appeal, challenging the community property characterization.
- The Court of Appeal, with one justice dissenting, reversed the trial court's judgment, holding that all disability benefits were the husband's separate property.
- The California Supreme Court granted review of the Court of Appeal's decision.
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Issue:
Do disability insurance benefits received after separation constitute community property when the policy was purchased with community funds during the marriage, but renewed with separate funds after separation, and the disability occurred during a post-separation renewal term?
Opinions:
Majority - Werdegar, J.
No. Post-separation disability benefits are the separate property of the insured spouse when the premium for the term in which the disability occurred was paid with separate funds and without an intent to provide community retirement income. The court's analysis under In re Marriage of Saslow focuses on the intent accompanying the premium payment for the specific term in which the benefits become payable. Here, the husband renewed the policies post-separation with his separate property, and there was no evidence he intended to provide community retirement income with these payments. The court distinguished this from term life insurance cases, reasoning that disability insurance primarily replaces post-separation lost earnings, which are separate property. Therefore, the community's prior purchase of the policy and its renewal rights does not create a community interest in benefits paid for a term funded by separate property.
Dissenting - Kennard, J.
Yes, in part. The disability benefits should be apportioned between community and separate property. The majority incorrectly ignores the community's significant contribution: the purchase of the non-cancelable policy and the valuable right of renewal. This right, paid for with community funds, enabled the husband to maintain coverage when he might have become uninsurable due to his pre-existing back condition. The dissent argues that Saslow should apply, and since the policy was purchased with the intent to provide retirement income, the benefits should be treated like a pension and apportioned based on the ratio of community versus separate premium payments over the life of the policy.
Concurring - Baxter, J.
No. The benefits are the husband's separate property. However, the court should go further and overrule In re Marriage of Saslow. The premise of Saslow—that private disability insurance can be intended as retirement income—is flawed and does not align with commercial reality. Disability insurance is designed solely to replace lost earnings, not to fund a retirement. The Saslow test is illogical in the private insurance context and leads to judicial second-guessing of an insurer's legitimate determination of disability.
Concurring and dissenting - George, J.
No, but the husband must reimburse the community. The disability benefits themselves are properly characterized as the husband's separate property because he paid for the relevant policy term after separation. However, the contractual right to renew the policies at a guaranteed premium was a valuable community asset purchased with community funds. When the husband appropriated this asset for his own use after separation, he should have been required to reimburse the community for its value at the time of separation, regardless of the characterization of the eventual benefits.
Analysis:
This decision significantly limits the holding of In re Marriage of Saslow by focusing the characterization of term disability benefits on the specific policy period in which the disability occurs. It creates a bright-line rule that if the premium for that term is paid with separate funds post-separation, the resulting benefits are separate property. This holding establishes a clear distinction between the community property treatment of term disability insurance and term life insurance, making it more difficult for a non-insured spouse to claim an interest in post-separation disability proceeds based on the community's historical premium payments or purchase of renewal rights.
