In
re: Marriage of Duncan
Use
of Alternative date of valuation under Family Code §2552(a)
proper where professional post-separation
efforts result in increase in value of community-owned business.
This 2001 case out of San Diego addressed the question
of whether an alternative date of valuation under Family Code
§2552(a) requires that the change in value be related
entirely to the post-separation efforts of the managing spouse.
The parties were married when they formed a pension investment
firm in 1990. The company was managing over $1 billion in
assets when the parties separated in 1994. Husband continued
to operate the investment business after the date of separation.
The trial court did not hear the valuation issues until 1997,
by which time the investment portfolio of the company had
increased substantially. Husband argued that because the increase
in the size of the firm was due to his own post-separation
efforts, the business should be valued as of the date of separation
instead of the date of trial.
Wife asserted on appeal that the trial court’s use of
the alternative date of valuation was improper because the
post-separation increase in value was due to factors other
than husband’s personal efforts.
In its analysis the appellate court reviewed the state of
the law in California regarding the application of the alternative
date of valuation provided for in Family Code §2552(a).
“Case law has established that good cause generally
exists for a professional practice to be valued as of the
date of separation.” (Marriage of Kilbourne (1991) 232
Cal.App.3d 1518 [valuation of law practice]; Marriage of Green,
(1989) 213 Cal.App.3d 20 [valuation of law practice].)
This exception applies because the value of such businesses
“is primarily a reflection of the practitioner’s
services and not capital assets… Because the earnings
and accumulations following separation are the spouse’s
separate property, it follows that the community interest
should be valued as of the date of separation - the cutoff
date for the acquisition of community assets.” (Marriage
of Stevenson (1993) 20 Cal.App.4th 250, 253-254). Further,
“[t]he rationale for the general exception is not limited
to law practices. It applies with equal logic to other small
businesses that rely on the skill and reputation of the [managing
spouse].” (Marriage of Stevenson 20 Cal.App.4th at 254
[small general contracting business].) Thus an alternative
date of valuation may apply to a business when its value “...devolves
largely from the personal skill, industry and guidance of
the [managing spouse].” (Ibid.)
Here the community company manifested all of the attributes
of a professional practice, including performing a service
for a fee, offering specialized knowledge and experience,
being licensed and regulated, and having asset that consist mostly of office equipment, accounts receivable,
and work-in-progress.
Thus the value of the company derived not from its capital
assets, but rather from the professional investment advisory
services that husband provides to it. Nothing in Family Code
§2552(a), the Court held, requires the trial judge to
find that the entire post-separation change in value was due
exclusively to the personal efforts of the operating spouse
in order to apply an alternative valuation date. |
