## Facts

- Husband owned Desert Mountain Medical (DMM), a medical-hardware distributorship, as his separate property before and during the marriage.
- The parties married in 1998 and later dissolved the marriage; they settled all issues except whether the community had an interest in DMM’s increased value during the marriage.
- The superior court appointed a special master to value DMM and apportion any community interest.
- Using a capitalization-of-earnings approach, the special master valued DMM at $163,166 at the start of the marriage and $1,440,000 as of October 31, 2003.
- The special master allocated $550,000 to Husband as a fair return on his premarital investment.
- The remaining increase after that return ($890,000) was attributed two-thirds to community efforts and one-third to external market forces, yielding a community share of $593,333.
- The trial court adopted the special master’s conclusions and awarded Wife $296,667 (one-half of the community share).
- Husband appealed, challenging both the community’s entitlement to share in the increased value and the evidentiary basis for the two-thirds allocation.

## Issues

1. Whether the community may share in the increased value of a spouse’s separate business when the community already received substantial profits or distributions and a salary for labor.
2. Whether the evidence supported allocating two-thirds of the increase in value to community efforts and one-third to external market forces.

## Decision

- The court affirmed the judgment awarding Wife $296,667.
- The court held that community labor applied to a spouse’s separate business can support a community interest in the business’s increased value, even if the community also received salary and distributions.
- The court held that sufficient evidence supported the trial court’s factual finding that two-thirds of the increased value was attributable to community efforts, with one-third attributable to external factors.

## Legal Principles

- A spouse’s separate business remains separate property, but the community may be entitled to an interest in the increase in value during marriage to the extent the increase is attributable to community labor or efforts.
- Receipt of salary, profits, or distributions from a separate business does not automatically bar a community claim to a share of increased business value attributable to community efforts.
- A court may award the owning spouse a fair return on separate-property investment and then apportion the remaining increase between separate and community interests based on the causes of the increase.
- Capitalization-of-earnings is an acceptable method to value a closely held business for purposes of allocating increased value between separate and community interests.
- Allocation between community efforts and external market forces is a factual determination reviewed with deference when supported by the record and expert-based valuation methodology.

## Conclusion

The court upheld an allocation awarding the community a share of the increased value of a spouse’s separate business based on community labor, approving a method that grants a fair separate-property return and apportions the remaining increase between community and external causes.


Rueschenberg v. Rueschenberg, 219 Ariz. 249, 196 P.3d 852 (Ct. App. 2008)