## Facts

- Frances and Stanley Folb married in 1949, divorced in 1958, and remarried in June 1959 after signing an antenuptial agreement.
- The agreement provided that property owned by either spouse at remarriage (and earnings from that property) would remain separate, but an interlineated term limited this separate-property regime to the first four years of the remarriage.
- The trial court construed the four-year limitation to mean that, after four years, earnings from property held by either spouse would be community in character.
- Stanley entered the remarriage with substantial separate commercial real estate interests and was found to be a successful owner-developer who personally managed and supervised development activities.
- By June 1963 (end of the four-year period), Stanley’s separate assets were found to be approximately $1,124,926; by separation on December 31, 1971, the parties’ overall property value was about $4,264,770.
- A central dispute in the dissolution concerned how to allocate the post-1963 increase in value of Stanley’s separate commercial real estate between his separate estate and the community, given his efforts during marriage.
- Stanley argued he was essentially a passive investor and that appreciation should be treated largely as a return on separate capital; Frances argued the increase largely resulted from Stanley’s marital labor and skill.
- Stanley also held cash or cash-equivalent assets as of 1963 (about $123,000) but lacked records for later withdrawals and expenditures.

## Issues

1. Whether the trial court properly applied Pereira apportionment to the increase in value of the husband’s separate commercial real estate given evidence of substantial marital efforts.
2. Whether the trial court’s assumed reasonable rates of return (12% for commercial real estate; 7% for cash/cash equivalents) were supported by the evidence and within its discretion.
3. Whether the evidence compelled treatment of the husband as a passive investor such that more appreciation should have been allocated to separate property.

## Decision

- The Court of Appeal affirmed the interlocutory judgment provisions challenged on appeal concerning valuation, characterization, and division of community property.
- The court upheld the trial court’s use of the Pereira method to apportion the increase in value of the husband’s separate property.
- The court upheld the trial court’s selection of a 12% return for commercial real estate and a 7% return for cash/cash-equivalent holdings as reasonable and supported by the record.
- The court rejected the husband’s claim that he should be treated as a passive investor where the evidence showed extensive personal involvement in development and management.
- The court sustained the trial court’s approach to cash holdings despite incomplete records, treating the chosen return rate as a reasonable approximation for separate-property growth.

## Legal Principles

- When a spouse’s separate property increases in value during marriage, the increase must be apportioned between (a) a reasonable return on separate capital (separate property) and (b) the portion attributable to community labor, skill, and management (community property).
- Pereira apportionment is appropriate where the owning spouse’s personal efforts are a major cause of growth; it allocates a reasonable return to separate capital and treats the excess as community.
- Van Camp apportionment is generally used where capital investment or external economic factors, rather than personal services, are primarily responsible for growth; it allocates a reasonable value for services to the community and treats the remainder as separate.
- Fixing a “reasonable” rate of return is a fact- and equity-based determination committed largely to the trial court; the court may select a rate lower than market testimony when warranted by the extent of community effort.
- Appellate review is deferential where the trial court’s apportionment and valuation determinations are supported by substantial evidence and reflect a permissible exercise of discretion.

## Conclusion

The court affirmed the dissolution property division, holding that Pereira apportionment properly attributed significant post-agreement appreciation of the husband’s separate commercial real estate to community effort, and that the trial court acted within its discretion in setting reasonable return rates and allocating the remaining increase to the community.


In re Marriage of Folb, 53 Cal. App. 3d 862, 126 Cal. Rptr. 306 (Ct. App. 1975)