Apportionment Methods - Pereira-VanCamp

Analysis Measures Potential Community Interest in Separate Business Property

Case Study: Our client, Jones owned a computer circuit board fabrication and manufacturing company at the time the parties’ marriage in 1992. He was president of the Company and worked full-time running the Company during the marriage and held the same ownership interest at the time the parties separated, in 2000. Wife asserted that the community was entitled to apportionment of the increase in value of the husband’s separate property interest in the Company because husband had provided the Company with his community labor during the term of the marriage.

Counsel elected to apply a Van Camp approach [Van Camp v Van Camp, [1921] 53 CA 17]. This method of apportionment measures the adequacy of the compensation paid to the community for the separate property spouse’s work efforts during the marriage. To the extent that the compensation was less than the value of the labor provided to the company, the Court may apportion part of the separate property to the community. In theory, the underpayment to the community by the Company could be treated as an investment in the Company by the Community, and any increase in value during marriage apportioned to the Community on the basis of that investment.

As part of our assignment we were asked to determine whether the community had been adequately compensated by husband’s separate property Company during the term of the marriage.

As a first step we collected the compensation history of the husband, for each of the years he was employed by the Company. We then compared this amount to appropriate measures of the value of his labor. This analysis followed the same procedures we used to test the value of owners’ compensation for every valuation assignment. We usually use the Economic Research Institute (ERI) survey-based data, and did so in this case, as well. ERI is an independent firm that studies compensation levels for many industries and government and provides that information to human resource department. We were also able to find a Circuit Board Manufacturer industry association that collects salary information from its members. We also compared Husband’s compensation to the local Consumer Price Index. Our analysis resulted the chart shown below.

The comparative data we were able to find showed pretty clearly that the ERI and Industry-based compensation exceeded the growth in the CPI by a significant amount. This isn’t surprising: both of these sources are driven by industry-specific surveys of companies, whereas the CPI data simply plots a base year against increases in the cost-of-living. During the period we examined, the demand for professional managers in the circuit board industry drove the price of that labor upward faster than the general cost-of-living.

Conclusion. Our Data showed that for each of the years during the marriage, Husband’s compensation, the amount received by the community for his services, exceeded the fair market value of the services he provided to the Company. In this case, the Community was compensated adequately for the services it provided to the company through Husband’s labor. From this Van Camp viewpoint, there was no justification for apportionment based on inadequate compensation of the community.