In California dissolution cases, what formula should be used in valuing businesses acquired during the marriage? In IRMO Brooks (3/27/19) this issue was raised as it pertains to the appreciation of corporate stock from a business.

In this case, the Sixth District affirmed the trial court’s use of the Van Camp formula to apportion the appreciation of stock during marriage. “Utilizing this approach, the court characterized the increased value of the stock after marriage as return on Husband’s separate property, finding that Husband did not contribute to the growth of the business after the date of marriage.” It held that substantial evidence supported the trial court’s finding that H’s efforts were not the primary factor in the growth of his stock in the company during marriage.

Husband’s retained valuation expert David Schultze testified DigiDesign’s value would have decreased after the date of marriage had Sound Tools been the only product sold; the increase in value was the result of Pro Tools and had nothing to do with Husband’s post-marriage efforts, as his contribution was equal to the contributions made by every employee during that period. Rather, it was Husband’s pre-marriage efforts that provided the most value increase, as Sound Tools did contribute prior to Pro Tools’ release; Schultze noted Sound Tools was developed and released prior to the date of marriage.

Wife argues the trial court’s application of the Van Camp method did not achieve substantial justice, in that the trial court found the entire appreciation of the DigiDesign stock to be return on Husband’s separate property, based on its finding that Husband’s efforts, and thus, the community’s efforts, did not contribute to DigiDesign’s post-marriage growth. In her opening brief, Wife contends the trial court did not apportion the post-marriage growth at all. Wife is incorrect.5 The trial court clearly stated, “based [on its] finding of fact, the Court is satisfied that it should make an apportionment of DigiDesign profits between the separate and community estates,” thereafter adopting the Van Camp approach to apportionment of the stock appreciation. That approach ultimately led to the court finding that Wife would not receive any additional funds from the money earned from DigiDesign; implicit in this ruling is a finding that Husband’s salary during the marriage reflected the “reasonable value of the community’s services,” such that the remainder of the increase constituted Husband’s separate property. In its final statement of decision, the court explicitly stated that Husband’s experts, “as well as the facts, establish that the community was adequately compensated by [Husband’s] earnings during the marriage.”

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