Beam v. Bank of America (1971)


NAME: Beam v. Bank of America
Jx/DATE/CITE: Supreme Court of California (1971)
DECISION BELOW: The trial court determined that the total community property at the time of trial was $38,000. W appeals on the grounds that the Court failed to adequately compensate the community for H’s skill and efforts in managing his separate property.
RULE: Pereira test: The Court will allocate a fair return on the separate business, and the remainder is presumed to be a result of individual effort; which makes it community property.Van Camp test: The Court will determine the “reasonable value” of the husband’s services (salary), and allocate that amount as community property; the remainder is credited as separate property.
FACTS: Married 1939, and divorced in 1968 (29 years). H inherited $1.6M (separate property). H did not work at all, but focused his efforts on managing his sep. prop. over 29 years H’s value increased to $1.8M. The only money received and spent for the family came from the profits stemming from H’s separate property. The community expenses came out to $2,000/month.
P ARGUMENT: The Pereira test would lead to the conclusion that none of the separate property’s growth was a result of H’s skill and effort, but this test does not achieve “substantial justice” between the parties, the Court should apply Van Camp. Under Van Camp, H would be entitled to 1% of the corpus, or $17,000 a year. This would amount to $357k; W is entitled to ½ of that.
D ARGUMENT: Even under the Van Camp test, the community is not entitled to any growth in the business because community expenditures are balanced against the community income. Since community expenses were $2k/month, or $24k/year; clearly the community expenses exceed the $17k community income under Van Camp.
RULE: As a general rule, profits accruing from separate property remain separate, but since income arising from a person’s skill and effort is considered community property, the community should be credited to the extent the profits were a result of those efforts.
ANALYSIS: The Court may select whichever formulation of the rule will achieve substantial justice between the parties. The Court below had all the information, and determined that the Pereira test, was the appropriate test toapply; adopting 7% as a “reasonable return” on H’s capital investment. Based on the 7% base, the Court ruled that H’s separate property was $4.2M, and therefore, none of the growth is attributable to H’s skill ad effort.