According to Christina's sister Collette Bousson, Christina and Karl were struggling financially and tensions rose in their relationship.
Karlsen told police that Christina was in a bathroom when some kerosene that had spilled suddenly erupted in flames. He got the kids out, but Christina was trapped in the fire. The window to the bathroom had been boarded up with 17 nails.
Karlsen told investigators the window pane had broken, so he had temporarily covered the window to keep out the cold and police ruled it an accidental fire. Christina's family had their suspicions, but Collette said, for the good of the children, they put their best face on things.
"I had to set aside all of my suspicions," she said. "I had to set aside everything that could have been a roadblock for me. Because I was absolutely going to make sure those kids knew their mother."
Karl moved across the country to New York State and got remarried, this time to Cindy. Even when Collette Bousson and her family heard that Karl's New York barn in Seneca County, N.Y., insured for $90,000, had burned down, she said they held their tongue.
But all that changed, Bousson said, the day she found out Levi was dead.
"I knew Karl did it," she said. "I didn't know what he had to gain. But I knew he did it."
Bousson said she tried to warn Cindy, but she wouldn't listen.
"We made it very clear that -- that she should probably be careful," she said. "Because we felt that she needed to know that there was a lot of suspicions around the fire in Murphys."
Thanks to a tip from an unnamed family member, New York and California authorities re-opened the investigations into both Levi and Christina's deaths. That's when Seneca County Lt. Investigator John Cleere got involved for the first time and started checking out the long string of what he said was suspicious incidents connected to Karlsen.
"It's extremely unlikely that someone would have that many tragic events a few weeks after they obtain exorbitantly high insurance policies," he said.
The connection might seem obvious to some, but legal analyst Jami Floyd said there are reasons why authorities might not have made the connection.
"Well, you would think insurance companies have every incentive not to pay out, but one insurance company doesn't necessarily communicate with the next company," Floyd said. "And when you take out a policy, especially if you have a nefarious intent, you might not go back to the same insurance company you used in the first place, 10, 15, 17, 22 years ago. You're going to go to a different insurance company."
According to the prosecution's theories, Karlsen killed his son and first wife for the insurance money.
Karlsen has pleaded not guilty to the second-degree murder charges for his son's death and denies any wrongdoing in Christina's death. The judge has ruled that the jury will be allowed to hear the recorded conversation he had with his wife, Cindy, and the videotaped interrogation.
Karlsen's lawyer Larry Kasperek, speaking on his client's behalf, said he respectfully disagrees with the court's recent decision to allow the jury to hear the recorded conversations his client had with his wife and the videotaped police interrogation.
Karlsen will go to trial for the murder of his son on Oct. 21.
The district attorney in California's Calaveras County told ABC News that her office is now actively investigating Christina's death as a homicide, and could not comment on an active investigation.
ABC News' Lauren Effron contributed to this story