When a business owned separately by one spouse prior to marriage grows during the marriage, courts apply either the Pereira or Van Camp formula to allocate growth between separate and community property.
If Spouse A founded a business prior to marriage and continued working at the business during the marriage, California courts determine how much of the increase in business value belongs to the community versus Spouse A's separate estate.
Applied when business growth is primarily driven by the spouse's personal skill, effort, and labor. Grants separate property a reasonable rate of return (e.g. 7%), with all remaining growth allocated to the community.
Applied when business growth is primarily driven by capital, market forces, or economy. Determines fair market salary for the spouse's labor, subtracts actual salary paid, and allocates remaining growth to separate property.
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