Opinion ID: 1191457
Heading Depth: 1
Heading Rank: 3

Heading: initial capital contribution

Text: The major issue in dispute concerns the extent of the community interest in Hybarger and Son Drywall. The court determined that, since the value of the business resulted from a combination of David's initial capital contribution of separate property and David's efforts during the marriage, the value of the respective separate and community property interests was fairly determinable under the Pereira formula. [1] This method of valuation provides that the court should determine the value of the separate property contribution, plus a fair return on the separate property investment, in order to ascertain the total separate property interest in the asset. The parties do not dispute the propriety of the district court's use of the Pereira formula in this case, and do not challenge the method of calculating a fair return on David's capital investment. [2] The partnership in question, Hybarger and Son Drywall, was created on January 1, 1976. Prior to that time, David Hybarger owned a sole proprietorship engaged in the drywall and painting business. In order to finance the partnership, David contributed the capital of the sole proprietorship, being the amount of $31,490. David took an 80% interest in the capital, profit and loss of the business, and David's son, Gordon, took a 20% interest in the capital, profit and loss of the business. Thus, David's initial capital contribution in the partnership was $25,192. The district court, in calculating the amount of David's separate property interest in the partnership, erroneously failed to take into account the undisputed fact that 20% of the capital contribution was allocated to Gordon Hybarger. The Pereira formula should therefore be recalculated by the trial court, using 80%, rather than 100%, of the $31,490 figure as the amount of David's initial separate property capital contribution.