Situational Characterization of Assets

Question 1

Personal injury damages recovered from a third party

Answer 1

Personal injury awards and settlements are CP if the cause of action arose during marriage.

If the cause of action arose before marriage or after permanent separation, then the award or settlement is SP of the injured spouse.

Question 2

What happens to personal injury awards upon divorce?

Answer 2

Despite the CP characterization, upon divorce, CP personal injury awards and settlements are assigned entirely to the injured spouse so long as they have not been commingled with CP funds and the interests of justice do not require otherwise.

Question 3

What happens if community labor improves the value of a SP business?

Answer 3

California uses two approaches where CP funds or labor enhance the value of a SP business.

The Pereira approach

The Van Camp approach

Question 4

When does the Pereira approach apply?

Answer 4

The Pereira approach favors the CP estate and is used by courts when the spouse’s management skills are the primary reason for the business growth.

Question 5

What are the Pereira formulas?

Answer 5

SP: SP contribution + reasonable rate of return (10 percent)

CP: Value of business - SP interest (from above)

Question 6

When is the Van Camp formula used?

Answer 6

Favors the SP estate and is used by the courts when the character for the business is the primary reason for the business growth.

CP interest: fair market value salary - family expenses - salary taken

SP interest: value of the business - CP interest. (from above)

Question 7

If SP contributions to CP business

Answer 7

Reverse Pereira or Van Camp apply.

Reverse Pereira:
CP interest: CP contribution + reasonable rate of return
SP interest: value of business - CP interest

Reverse Van CAP
SP interest: fair market value salary - family expenses - salary taken since separation
SP interest: the value of the business - SP interest

Question 8

Business Goodwill?

Answer 8

Earned during the marriage is CP.

Valuation methods:
market sales valuation (price of the business in the event it was sold)

capitalization of past excess earnings (what is the present value of the future stream of income that the goodwill developed during the marriage)

Question 9

Credit acquisition?

Answer 9

Presumptively CP when credit or purchase money is used to acquire property

UNLESS:

creditor relied primarily on SP when extending the creditor.

Question 10

Marital Home?

Answer 10

Both spouses must join in executing an instrument to sell, convey, encumber or lease their marital home.

Don’t need consent of the other if:
- in best interest of the community
- consent has been arbitrarily refused or cannot be obtained OR to grant as a family law attorney’s real property lien.