SPECIFIC TYPES OF PROPERTY

Question 1

Separate Property and Community Property Businesses (Checklist)

Answer 1

• Separate Property Businesses (Community Labor into an SP Business)
  
  • Pereira Method
  • Van Camp Method
• When Community Property Business Increases in Value After Separation
  
  • Reverse Pereira Method
  • Reverse Van Camp Method

Question 2

Separate Property Businesses (Community Labor Into an SP Business)

Answer 2

SP business income is usually characterized as SP. However, when the labor, CP, of a spouse adds some amount of value to an SP business, both spouses are entitled to share of the SP business. At the time of divorce, courts may use either the Pereira or Van Camp method to calculate the amount of CP existing in a SP business.*

*Both must be analyzed

Question 3

Pereira Method

Answer 3

The Pereira method is used when the SP business’s appreciation in value can be accredited to the spouse’s management efforts and abilities (always calculate the SP value first)

SP = SP business’s value at the time of marriage + (SP business’s value at time of marriage x rate of return* x years married)

*use 10% on the exam

CP = fair market value of the SP business upon divorce - SP

*once calculated, divide this number in half to determine each spouse’s share of the CP

Question 4

Van Camp Method

Answer 4

The Van Camp method is used when the SP business’s appreciation in value can be accredited to the nature of the market and the industry itself

CP = (reasonable salary - yearly family expenses)* x years married

*if value is 0 or negative, CP does not receive a share

SP = fair market value of the business upon divorce - CP

Question 5

When Community Property Business Increases in Value After Separation

Answer 5

After separation, if the CP business appreciates in value due to the management of one spouse, courts may use the reverse Pereira or Van Camp method to calculate the amount of SP existing in a CP business.

Question 6

Reverse Pereira Method

Answer 6

CP = the CP business’s value at time of separation + (value of CP at time of separation x rate of return x years separated)

SP = fair market value of business upon divorce - CP

Question 7

Reverse Van Camp Method

Answer 7

SP = reasonable salary during separation - family expenses during separation

CP = fair market value of business upon divorce - SP