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Separate Property: How to Handle Increases in Value During Marriage

Separate Property: How to Handle Increases in Value During Marriage

Separate property is property that the law recognizes as owned by only one spouse in a marriage. Community property is presumed property obtained during marriage. Those short definitions make property issues sound simple, but they often are not. If you and your spouse were married for any length of time, there’s a good possibility any separate property brought into the marriage may have increased in value.

So, how does such an increase in value affect a divorce settlement?

That depends on the asset and how the asset appreciated in value.

Business Assets

Sometimes one spouse starts a business before marrying. The business is that spouse’s separate property. If the marriage ends, isn’t the business still considered separate property? Not always.

For example, Jay owned a business prior to marrying Jill. He brought the business into the marriage as separate property. However, Jill spent many hours helping him build his mom-and-pop store into a much larger retail operation. When they decide to divorce after 12 years of marriage, what right does Jill have to Jay’s business assets?

Community labor is worth something. Both Jay and Jill’s efforts, during marriage, played a big part in the store’s success. Jill probably is not entitled to own part of the business. However, she is entitled to an interest in the business because the separate property increased in value due to Jay and Jill’s efforts during marriage.

Acquired Assets

Property purchased during a marriage is generally considered to be community property. However, gifts and inheritances that one spouse receives are the separate property of that spouse. It’s possible, though that a spouse could receive an inheritance that increases in value. The increase may become community property.

Gloria owned a house prior to marriage. Three years after marriage to Bob, Gloria put Bob on the deed. When Gloria and Bob divorce, Bob wants half the equity in the house. Bob may have a community interest in the home.

Calculating the Community Increase

Once it’s determined that the increased value of separate property is community property, how is the increase calculated?

Divorce courts and attorneys may use formulas based on prior divorce cases to figure out property division.

  • Moore/Marsden calculations are sometimes used to calculate how much of a home’s value became community property during a marriage. This formula uses separate property appreciation amounts, total principal reduction, and comparisons between purchase price and current value.
  • Pereira accounting may be used to figure out how community funds and community labor enhanced the value of separate property. It’s typically used when the business appreciates due to the efforts of the spouse who doesn’t own the business.
  • Van Camp accounting typically is used when a business value increases due to the business or to economic factors.

Pereira and Van Camp are two family law cases in which the courts had to decide division of property that increased in value.

Learn More About Separate and Community Property

The attorneys at the Law Offices of Judy L. Burger are experienced at all phases of divorce proceedings. Call us at 415-293-8314 to schedule a private appointment or visit our website. We maintain offices in Marin County, San Francisco, Santa Barbara, Ventura/Oxnard, San Jose, Gold River (Sacramento), and surrounding communities. Our Beverly Hills office will be opening soon.