Apportionment between Community & Separate Increased at DOS $500,000 Less due community (200,000) [70-50 = 20 X 10](reasonable compensation) Separate property = $300,000 Pereira v. Pereira(1909) 156 Cal. 1 Pereira method: “P” = Personal Services Interest on separate property value during the marriage = SP Balance of above the SP plus interest equals CP (Requires business valuations – unlike Van Camp) Pereira Method Pereira Method (cont’d) First, compute separate value Value at date of marriage Add interest on from date of marriage to separation Equals of SP to DOS Pereira Method (cont’d) Treat date of marriage value Like a pre-marriage SP savings account earning interest (Case law not specific whether compound or simple) Pereira: Example No. 1 Pereira Example No. 1 Answer Pereira Example No. 1 Answer (cont’d) Pereira: Example No. 2 Pereira: Example No. 2 (cont’d) Pereira or Van Camp? Understanding Pereira & Van Camp Question Which Method Applies? P = Personal service (Pereira) VC = Valuable capital (Van Camp) Capital (equipment/inventory) trial trial
Typically, the expert will discount the value by an appropriate tax rate as an immediate and specific tax consequence Marriage of Fonstein (1976) 17 Cal.3d 738 Determining the Value of WIP/AR (cont’d) But see Johnson v. U.S. (9 Cir 1943) 135 F.2d 125 H awarded the business with outstanding AR Each party reported one-half of A/R when collected IRS gave W a refund and assessed H a deficiency 9th Cir REVERSES, holding that A/R is CP income, so they can’t all be assigned to H Partnership/Shareholder Agreements Typically, a will disregard partner/shareholder agreements which limit the value of the business As value is determined as “in place” value to spouse who will be continuing in the business Marriage of Fenton (1982) 134 Cal.App.3d 451 Other Issues re Accounts Receivable Partnership/Shareholder Agreements (cont’d) However, in the unusual situation in a business has multiple owners who operate under an agreement which limits a partner/shareholder’s ability to receive his or her pro rata share of AR Then the court has the discretion to disregard AR Marriage of Nichols (shareholder agreement provided that a shareholder’s compensation was not linked to A/R and CA-3 affirmed decision which ignored value of AR) Other Issues re Accounts Receivable Partnership/Shareholder Agreements (cont’d) Marriage of Nichols was followed in Marriage of Iredale and Cates (2004) 121 Cal.App.4th 321 CA-2(4) held that, where partner did not “buy into” firm’s WIP/AR at the front end, the value of his/her partnership interest for marital disso purposes did not include pro rata value of WIP/AR Issues re Accounts Receivable In re Marriage of Kilbourne (1991) 232 Cal.App.3d 1518 (CA-1(1)) H had personal injury practice with significant WIP at DOS H argued unsettled cases should be allocated to him at zero value on basis that court should not reserve jurisdiction over an asset and there was no value yet since not settled CA-1(1) REVERSES but finds a limited time period reservation was acceptable In addition, H refused to provide evidence necessary to make determination of present value (on confidentiality basis), so reservation only possible method Contingency Cases Impact on Spousal Support trial trial