The Community is Entitled to Reasonable Compensation for a Spouse’s Efforts Towards a Separate Property Business

In Marriage of Van Camp, husband owned a sea food company prior to marriage. At the divorce trial, wife’s divorce lawyer argued that the value of the business increased substantially during marriage and under Pereira v. Pereira (1909) 156 Cal. 1, the increase in value was community property less a reasonable rate of return.  The divorce court adopted wife’s divorce lawyer’s reasoning.  Husband’s divorce attorney appealed.

The Court of Appeal reversed the divorce court’s ruling by holding that the Pereira method did not apply to capital intensive businesses. “While it may be true that the success of the corporation of which [husband] was president and manager was to a large extent due to his capacity and ability, nevertheless without the investment of his and other capital in the corporation he could not have conducted the business, and while he devoted his energies and personal efforts to making it a success, he was by the corporation paid what the evidence shows was an adequate salary, and for which another than himself with equal capacity could have been secured.”

The Van Camp apportionment method generally favors the separate property business owner.  The Van Camp approach is commonly used when the business is capital intensive and factors other than the efforts, skill, and labor of the owner spouse, such as market conditions, are the primary basis for the increase in the businesses value.

Van Camp v. Van Camp (1921) 53 Cal. App. 17