Division of Separate Property Business
One or both spouses may bring a separate property business into the marriage. The spouse then continues to work in and fund that business with his or her community proper labor. Thus, the business becomes a mixed separate and community property asset. Upon dissolution, a spouses’ separate property is confirmed to that spouse and the community property is divided equally between both spouses. However, when an asset is characterized as mixed, the division is not so simple.
San Diego family court judges apply two specific formulas when apportioning a separate property business during the divorce process. When community labor is used to increase the value of a separate property business, the community is entitled to share in the increased value. To apportion the separate and community aspects of the business, the courts have developed two methods based on family law cases: Pereira and Van Camp. Often, only one of these methods will be used and they are each applied to particular situations. The judge must determine which to use in each case.
Pereira accounting is used when the increase in value of the separate property business is primarily the result of community labor. In this case, the majority of the increase is attributable to the spouse and not outside market forces or events. Under Pereira, the court first determines the value of the business at the beginning of the marriage and then gives it a fair rate of return of the course of the marriage. The spouse’s separate property is given the initial value of the asset plus the fair rate of return. The remainder of the value is community property and distributed as such.
Van Camp accounting is used when the increase in the value of a business is primarily the result of the unique nature of the particular asset. Using Van Camp the court determines a fair salary for the community labor that contributed to the business. That amount is multiplied by the years of marriage. Any salary already received and amounts paid for community expenses are deducted from the salary amount. The rest of the value is community property and distributed as such.
If you are interested in obtaining a divorce or legal separation from your spouse we can provide you with information and guide you through your options. Our team of experienced attorneys is prepared to litigate on your behalf.
If you wish to schedule a consultation with Nancy J. Bickford, call us at (858) 793-8884.