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A Hybrid Apportionment Method may be Used to Achieve Substantial Justice

In Brandes, Husband founded an investment advisory service business prior to marriage. When the parties met in 1982 the business was managing approximately $8 million in assets.  During the divorce trial it was elicited that Wife refused to marry Husband until such time that he became more successful.  Husband began to contribute more time and effort to the business. The parties married in 1986 and at this time the business managed over $20 million in assets.  By 1987 the business managed $63 million in assets.

From 1987 to 1991 Husband was the sole manager, created the investing philosophy, and Husband was in charge of marketing, soliciting investors, and hiring employees.  In 1991 the business managed $213 million of assets.

Around 1991 two employees of the company recognized the growth potential in institutional markets and convinced Husband to allow the company to enter these markets and create a new fund.  The firm also hired a new employee to market and manage this fund. Additionally, an executive committee was formed which took over the management decisions of the company.  By 2004 the company managed $85 billion in assets.

The parties separated in 2004. At the divorce trial, Wife’s divorce lawyer argued that the increase in the value of the company, under the Pereira approach, was almost entirely community property of which she was entitled to half.   Husband’s divorce lawyer argued that pursuant to the Van Camp approach, the increase in the value of the business was due to market conditions and a change in the structure of the business.  Husband’s divorce lawyer contended that the community had already received reasonable compensation for his community efforts and thus the community had no interest in the increased value of the business.

The divorce court used a hybrid approach in allotting the company’s increased value between Husband’s separate property and the community.  The divorce court determined that between 1986 and 1991 the primary factor in the growth of the business was Husband’s personal efforts and skill.  The court apportioned the increase in value of the business for this time period using the Pereira approach.  The divorce court then determined that between 1992 and 2004, the growth of the company was principally attributable to factors other than Husband’s personal efforts, and thus allocated the increase in the business value during this timeframe using the Van Camp approach.  Both parties’ divorce attorney’s appealed.

The Fourth District Court of Appeal affirmed the divorce court’s use of a hybrid apportionment approach.  The Appellate Court agreed that Husband’s role in the business changed during marriage such that his efforts and skill, which were once the primary driver of the business’s growth, were no longer the primary reason for its continued increase in value.  The Court held that the hybrid method achieved substantial justice.

In re Marriage of Brandes (2015) 239 Cal.App.4th 1461