Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-3_06-ap-03095/USCOURTS-canb-3_06-ap-03095-0/pdf.json

Parties Involved:
Robert C. Duggan
Plaintiff
E. Lynn Schoenmann
Defendant
Rosemary Duggan
Defendant

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re ) Bankruptcy Case

 ) No. 05-33146DMLS

ROSEMARY DUGGAN, )

)

Debtor. ) Chapter 7

___________________________________) 

ROBERT C. DUGGAN, ) Adversary Proceeding

) No. 06-3095DM

Plaintiff,)

)

v. )

)

E. LYNN SCHOENMANN, TRUSTEE, and )

ROSEMARY DUGGAN, )

)

 Defendants.)

___________________________________)

MEMORANDUM DECISION REGARDING PROPRIETORSHIP AND ANNUITY

On May 14, 2007, this court conducted a trial in the abovereferenced adversary proceeding. Basil J. Boutris, Esq. appeared

on behalf of Robert C. Duggan (“Plaintiff”) and Reidun Stromsheim,

Esq. appeared on behalf of E. Lynn Schoenmann (“Trustee”). At the

conclusion of the submission of evidence and the presentation of

arguments, the court announced its rulings and findings as to

proceeds from the sale of Plaintiff’s former residence and as to

the estate’s interest in two motorcycles.

The court then requested the parties to submit further

Signed and Filed: July 24, 2007

________________________________________

DENNIS MONTALI

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

July 26, 2007

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 06-03095 Doc# 39 Filed: 07/24/07 Entered: 07/26/07 13:16:05 Page 1 of 5 
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 The following discussion constitutes the court's findings

of fact and conclusions of law. Fed. R. Bankr. P. 7052(a).

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briefing on the issues of the estate’s interest in a sole

proprietorship owned by Plaintiff and in allocation of

contributions to an annuity and burdens of proof regarding those

allocations. The parties submitted simultaneous briefs on June

29, 2007. For the following reasons, the court rules in

Plaintiff’s favor as to the proprietorship and in Trustee’s favor

as to the annuity.1

With respect to the annuity, the court held in its oral

findings that the bulk of the contributions were made from

community property funds even though a portion of the

contributions came from Plaintiff’s separate property. In his

post-trial brief, Plaintiff conceded that he was unable to present

evidence to rebut the presumption of the community property nature

of the annuity. The court will therefore adhere to its tentative

oral ruling that the annuity is community property.

As to the proprietorship, the court asked whether a

proprietorship, having been formed before marriage, could somehow

become community property because of the efforts of the non-debtor

spouse to maintain, enhance, and grow the business. The evidence

showed that over recent years the net income, and thus the value

(based upon a multiplier of 1.0, the trustee producing no contrary

evidence) changed from year to year, with a $112,000 value in the

year of separation (2001) and a $90,000 valuation in the year that

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Plaintiff also testified that the proprietorship had a net

annual income of approximately $100,000 in its initial years (1979

and 1980).

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Plaintiff’s former spouse filed bankruptcy (2005).2 Plaintiff

testified, and the court finds, that during his marriage to

Debtor, all net profits from the proprietorship were committed to

community expenses. The parties’ supplemental briefs addressed

the issue of whether the proprietorship should be treated entirely

as community property. 

Upon reviewing the law and the facts, the court concludes

that the proprietorship is Plaintiff’s separate property. Where a

spouse has a separate property business in which he is employed

and the business increases in value, the enhanced value and

profits are attributable in part to the original capital (the

separate property) and in part to the spouse’s labor and skill

(community property). 11 B.E. Witkin, Summary of California Law,

Community Property § 121 (10th ed. 2005) (“Witkin”). To allocate

the proper portion of the enhanced value and profits to the

separate and community interests, California courts typically

choose between two approaches. Marriage of Dekker, 17 Cal. App.

4th 842, 853, 21 Cal.Rptr.2d 642 (1993). The first, the approach

set forth in Pereira v. Pereira, 156 Cal. 1, 103 P. 488 (1909), is

generally applied where, as here, profits are attributable to

community effort. Dekker, 17 Cal. App. 4th at 853; Witkin § 122. 

Under Pereira, the court allocates a fair return on the separate

property as separate income and allocates the rest to the

community property. Id.

Here, the value of tangible property owned by the

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proprietorship is negligible, as conceded by Trustee in her brief. 

The value of the business is based on Plaintiff’s sales of

insurance policies and annuities. Plaintiff testified that his

proprietorship had a value of approximately $100,000 at the time

of marriage and a similar value now. Given the nature of the

business and the net income generated each year, the court agrees

and so finds.

Applying the Pereira approach, the community holds no

interest in the proprietorship as its value is roughly the same as

it was when it began as separate property. If the court accorded

Plaintiff’s separate property interest (the initial $100,000

value) a fair rate of return as required by Pereira, the

proprietorship would have been worth significantly more than it

was on the either the date of separation or the petition date. 

Therefore, the court concludes that the proprietorship is

Plaintiff’s separate property.

Trustee’s counsel should prepare, serve and upload a judgment

consistent with the court’s rulings set out in its oral findings

and conclusions announced on the record on May 14, 2007, and in

this memorandum decision.

**END OF MEMORANDUM DECISION**

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COURT SERVICE LIST

Basil J. Boutris, Esq.

Jon R. Vaught, Esq.

Vaught & Boutris, LLP

80 Swan Way, Ste. 320

Oakland, CA 94621

Reidun Stromsheim, Esq.

Stromsheim & Associates

201 California St., Ste. 350

San Francisco, CA 94111

Case: 06-03095 Doc# 39 Filed: 07/24/07 Entered: 07/26/07 13:16:05 Page 5 of 5