Character of Property: When community funds or labor enhance value of SP Flashcards
What are the three issues that arise with regards to community funds/labor enhancing value of SP?
- Apportionment of business profits
- Community payments that pay off purchase price of SP
- Improvements
What is the general issue with regards to apportionment of business profits?
One spouse brings SP business into marriage, and devote community labor to business.
At divorce or death, business may have appreciated and assets may have been purchased with business profits
What two methods do courts apply to apportion between SP and CP aspects of a business?
- Pereira Accounting
2. Van Camp Accounting
What is “Pereira Accounting”?
SP =
- managers SP capital +
- fair rate of return thereon
The remainder is CP
When is “Pereira Accounting” used?
Periera accounting is used when the management of the spouse was the primary cause for growth/productivity of the business.
What is “Van Camp Accounting”?
- manager’s services are valued at going market salary
- family expenses paid from business earnings are subtracted from 1 above
- the remainder, if any, represents the CP of the business
The rest of the business is SP
When should “Van Camp Accounting” be used?
Van camp accounting should be used when the character of SP business is largely responsible for its growth or productivity.
What method of accounting apply to stock portfolios and/or investments brought into marriage?
same rules
Van Camp/Pereira
What is the rule when community pays off purchase price of SP?
The community is the owner of the property in proportion to what it pays.
What is the rule if a spouse uses community funds to improve his own SP?
- If a spouse uses community funds to improve his own SP, no gift is presumed.
- The community is entitled to reimbursement of the GREATER OF:
1. the cost of the improvement, or
2. the amount by which the improvement increased the value of the asset
What is the rule when a spouse uses CP to improve other spouse’s SP?
General rule –> it is presumed to be a gift
HOWEVER –> gift presumption may be overcome by evidence of an agreement to reimburse
- If agreement does not specify reimbursement amount, reimbursable amount is the COST of the improvement
NOTE –> several appellate court judges have rejected the no-reimbursement rule, and have reimbursed the community
What is the rule when spouse’s separate property is used to acquire or improve other spouse’s SP?
- Spouse who makes a SP contribution to the acquisition or improvement of the other spouse’s SP is entitled to reimbursement, without interest or appreciation, of his separate property contribution.
