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Dividing Business Assets in Divorce with the Van Camp Approach

Posted by Michael Geller | Feb 01, 2022 | 0 Comments

In California family law, one of the most complex and hotly debated areas involves the division of property during divorce proceedings. California is a community property state, meaning that all assets acquired during a marriage are generally considered equally owned by both spouses. However, the division of business-related assets presents a unique challenge, particularly when one spouse owns or operates a business that grows in value during the marriage. The seminal case of Van Camp v. Van Camp (1921) is one of two key methods used by California courts to address the allocation of business profits and the contributions of each spouse.

Overview of Van Camp v. Van Camp

In Van Camp v. Van Camp, the California Court of Appeal established a formula to distinguish between separate and community property when it comes to business interests. The case involved a wife who owned a family business before marriage and continued to manage it during the marriage. The core issue was how to fairly compensate the community estate (the marital property) for the efforts of the spouse who operated the business while preserving the spouse's separate interest in the business.

The court in Van Camp created a method that looks at the reasonable value of the spouse's services in operating the business during the marriage. Any salary or compensation derived from that labor is considered community property, while the remainder of the business income and growth is considered separate property. This method is used when the success of the business is primarily attributed to the nature of the business itself or external market forces rather than the efforts of the spouse who runs it.

The Van Camp Formula

The Van Camp approach applies when the business or investment produces significant passive income and operates largely independent of the managing spouse's active participation. Here's a breakdown of how the formula works:

  1. Determine a reasonable salary: The court assesses the reasonable compensation that the spouse should have received for managing the business during the marriage. This is based on the industry standard and other relevant factors.

  2. Subtract living expenses: The court then subtracts the couple's reasonable living expenses from the spouse's business income or salary to calculate how much went to support the community estate.

  3. Characterize the remainder: Any remaining income or growth of the business is considered the separate property of the managing spouse, especially if that growth is attributed to external factors like the economy or the business's inherent value.

Application in Modern Divorce Proceedings

The Van Camp approach is typically used in cases where the business is capital-intensive or market-driven, rather than reliant on the personal efforts of the spouse. Examples include investment portfolios, real estate ventures, or businesses with significant infrastructure or passive revenue streams.

This method is often contrasted with the Pereira v. Pereira method, another major case in California family law. Pereira is used when the business success is closely tied to the personal skill, effort, or labor of the spouse. In those cases, more of the business profits are attributed to the community estate.

Key Considerations

It's important to note that both methods—Van Camp and Pereira—are flexible and subject to the discretion of the court. Judges will choose the method that they believe most equitably reflects the contributions of each spouse to the marriage and the business.

Divorcing couples who own businesses or other income-producing ventures should consult an experienced family law attorney to understand how these legal doctrines might apply to their situation. Each case is unique, and the facts surrounding the business, including its nature and the contributions of each spouse, will play a critical role in determining how the community property is divided.

In conclusion, Van Camp v. Van Camp remains a cornerstone in California family law, providing a method to allocate business income fairly between separate and community property. This case is essential for spouses involved in divorce proceedings with business ownership, especially when external factors play a significant role in the business's growth.

About the Author

Michael Geller

Michael Geller is an attorney licensed by the State Bar of California.

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