Dallys Faced Money Woes, Jury Is Told

Michael Dally was in such precarious financial shape that his wife tearfully pulled their children from private school three months before her death.

And two weeks after her disappearance, he cashed out his own $190,000 life insurance policy for $1,203 to wipe out stacks of unpaid bills.

That was the testimony offered Tuesday by two witnesses at Dally’s murder trial. It bolstered prosecutors’ suggestions that Dally killed his wife, Sherri, to avoid a costly divorce that would have ruined him financially.

Dally is charged with murder, kidnapping and conspiracy, and also faces allegations that his wife was murdered for financial gain and while her attacker was lying in wait.

A first-degree murder conviction paired with at least one of the other allegations could send Dally, 37, to death row.

The defense has maintained that Dally played no role in his wife’s slaying. Defense attorneys have pinned the murder solely on his longtime lover, Diana Haun, who was convicted of the same charges last fall and sentenced to life in prison.

Tuesday, an administrative assistant from Temple Christian School in Ventura testified that the Dallys removed their two children in February 1996 because they could not afford $410 in monthly tuition.

The Dallys were three months behind in their payments, prompting the employee, Deborah Matthews, to set a meeting with Sherri Dally in late January.

“She was apologetic and she cried,” Matthews told the jury. “She said, ‘We are having financial and marital problems.’ ”

Sherri Dally paid the back tuition and withdrew their boys, Devon and Max. She then enrolled them in a public school, Matthews said.

About three months later, on May 6, 1996, the 35-year-old day-care provider was abducted from a Target parking lot in Ventura. On May 20, her husband cashed out his life insurance policy.

Maryln Dunlap, an agent for Metropolitan Life Insurance Co., told the jury she tried to persuade him to take out a loan rather than lose the $190,000 policy. But she said Dally declined.

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“He said he had to pay some bills that his wife hadn’t paid,” Dunlap testified. He did not mention during that meeting that his wife was missing, but later asked how to file a death claim, Dunlap said.

Defense attorney James M. Farley asked Dunlap whether that question was unusual. She replied that it was not.

Dally also asked whether the $30 monthly premiums on his wife’s policy had been paid on time. His own $102 monthly premiums had not been paid in the three months before Sherri’s disappearance.

Although prosecutors suggested in their questions that Dally had paid his wife’s insurance premiums while letting his own policy lapse, defense attorneys clarified the point on cross-examination.

In fact, the premiums on both policies were automatically withdrawn each month from the Dallys’ checking account. In March, April and May 1996, the account showed insufficient funds to cover Michael Dally’s $102 payments, but there apparently was enough for hers.

In other testimony Tuesday, eight police officers provided details of their investigation into Sherri Dally’s disappearance.

Ventura Police Officer Matt Liston shadowed Michael Dally and his lover, who had immediately become prime suspects. Liston said that on May 8, 1996, he saw Dally and Haun arguing outside her Port Hueneme home after both had been interviewed by police.

Liston acknowledged on cross-examination that he could not hear their conversation, but said Dally appeared “agitated.”

Several detectives testified about phone calls they intercepted in the weeks after Sherri’s disappearance.

Realizing they were being watched, Dally and Haun began to communicate via pager, using an elaborate code of numbers and symbols, according to testimony.

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Dally’s code was “666” and Haun’s was “4949,” which stood for her nickname, “Di Di.” In cracking the code, detectives also determined that the number “214” stood for “love” and “4444” meant “forever.”

On June 1, 1996--the day Sherri Dally’s skeletal remains were found--Haun sent this message to Dally’s pager, according to testimony: 8989 666 214 4444#.

The translation offered in court: “Hi hi, Mike, love forever.”