Term Life Policy Held to Have Value : Court Says Such Insurance Can Be Awarded in Divorces

In a precedent-setting decision, a state appellate court in Santa Ana has ruled that term life insurance no longer should be considered a valueless asset in dividing property during a divorce.

The three-judge Court of Appeal panel unanimously overruled a 1983 appellate court decision that had found no monetary value in such intangible assets as term life insurance and accrued vacation time.

Future Support

Besides viewing term life insurance as property, the court said it also could be classified as future spousal support in cases where courts retain authority to modify divorce decrees.

“The court is saying that assets that have been determined as valueless are now going to be determined to have some value and that you can’t just throw them away in deciding how much community property there is to split up,” said W. Michael Hayes of Orange, attorney for Minerva Gonzalez, 62, of Tustin.

“The appellate court is saying it doesn’t know how much the property is worth but that it’s worth something,” said Frank Moss of Costa Mesa, attorney for the woman’s former husband, Ernesto Gonzalez, 52, of Garden Grove.

The Gonzalezes were married for 22 years before their 1981 divorce. Ernesto Gonzalez had retired a year earlier from the U.S. Marine Corps after 28 years of service and has held part-time jobs, his lawyer said. Minerva Gonzalez was a planner at an electronics firm but is no longer working, her lawyer said.

Among Ernesto Gonzalez’s four life insurance policies were two term policies on his own life. Unlike whole life policies that build up cash reserves, pay dividends or pay returns after a certain age, a term policy has no cash value and terminates when the insured stops paying premiums or dies, in which case the beneficiary receives the face amount of the policy.

In dividing their community property in half, Superior Court Judge Ronald E. Owen awarded Minerva Gonzalez her husband’s $25,000 term policy as the sole beneficiary, told her to pay the premiums, and let Ernesto Gonzalez keep his other policy for $20,000.

The husband appealed, citing a 1983 Court of Appeal opinion that held that a husband could keep his term life insurance policy and accrued vacation time as his separate property because a monetary value could not be placed on them and, if it could be, it would be negligible.

In the opinion released Tuesday and written by Justice Thomas F. Crosby Jr., the Santa Ana panel said the 1983 case “is simply incorrect.”

Criterion Cited

“If the ease of valuation has something to do with the definition of divisible community property,” he wrote, “the Mona Lisa could not qualify because it is literally priceless. Yet it would be ludicrous to suggest such property should be awarded to one spouse without a corresponding credit to the other, however arbitrarily determined.

The court suggested six factors to use in determining the value of term life insurance--the policy’s face value, the amount of the premium, the life expectancy of the insured, the ability to convert it to a whole life policy, the replacement cost and the time, if ever, that the policy vests.