In Re Marriage of Imperato
119 Cal. Rptr. 590, 45 Cal. App. 3d 432, 1975 Cal. App. LEXIS 1697 (1975)
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Rule of Law:
In a marital dissolution, community property assets are to be valued as near as practicable to the date of trial. However, under Civil Code § 5118, any increase in the value of a community asset after separation that is attributable to the personal efforts of one spouse constitutes that spouse's separate property and must be apportioned accordingly.
Facts:
- Louis J. Imperato and Diana L. Imperato married on June 27, 1959.
- On July 10, 1969, Personalized Data Delivery Service (PDD), a data processing delivery company, was incorporated with Louis Imperato as the sole shareholder, president, and manager.
- The couple separated on December 30, 1971, at which time PDD had a stipulated net worth of $1,665.85.
- Following the separation, Louis Imperato continued to operate the corporation.
- By June 30, 1973, PDD's net worth had increased to $17,614.26 due to Louis Imperato's continued management.
Procedural Posture:
- Louis J. Imperato and Diana L. Imperato were parties to a marital dissolution action in a California trial court.
- At trial, the court ruled that the community property business, PDD, should be valued as of June 30, 1973, the date closest to the trial.
- The trial court entered a judgment requiring the husband, Louis Imperato, to pay the wife her share based on this trial-date valuation.
- Louis Imperato, as appellant, appealed the trial court's judgment to the California Court of Appeal.
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Issue:
Does Civil Code § 5118, which classifies post-separation earnings and accumulations as separate property, require a community property business to be valued at the date of separation, thereby treating all subsequent appreciation as the separate property of the managing spouse?
Opinions:
Majority - Hastings, J.
No. Civil Code § 5118 does not alter the longstanding rule that community assets should be valued as of the date of trial, but it does mandate that the court must apportion any post-separation increase in value between the community and the separate property of the managing spouse. The court reasoned that the established rule of valuing assets near the date of trial remains valid because it accounts for passive growth factors like market fluctuations and return on capital, which should benefit the community. Section 5118's purpose is to treat a spouse's earnings and accumulations after separation as separate property, not to change the valuation date for all community assets. Therefore, a court must determine what portion of an asset's post-separation appreciation is due to the inherent qualities of the community asset itself and what portion is due to the personal efforts and labor of one spouse. The latter portion is the managing spouse's separate property. The court further held that in a marital dissolution involving a solely owned corporation, the corporate entity may be disregarded (the 'alter ego' doctrine) to fairly apportion the property between community and separate interests, especially where no third-party rights are affected.
Analysis:
This case clarifies the critical interplay between the date of valuation for community assets and the characterization of post-separation efforts under Civil Code § 5118. It rejects a bright-line rule valuing active assets at the date of separation, instead requiring a more nuanced apportionment analysis. The decision solidifies the principle that courts must distinguish between passive growth of a community asset (which remains community) and growth due to a spouse's active post-separation efforts (which becomes that spouse's separate property). This holding necessitates the application of apportionment formulas like Pereira and Van Camp in reverse, significantly impacting how courts divide community-owned businesses that continue to operate after separation.
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