The Van Camp Rule

Apportionment of Separate Property Business Profits

Summary of the Concept

The Van Camp rule is a foundational legal doctrine in California family law, used during divorce proceedings to determine how to divide the increased value of a business that one spouse owned as Separate Property (SP) before the marriage, but which appreciated during the marriage.

It operates on the principle that the community estate (CP) is entitled to receive fair compensation for the labor the managing spouse contributed to the business during the marriage. The majority of the business’s growth is attributed back to the SP capital because the growth was driven by external market forces or the inherent value of the asset, not primarily the community’s labor.

Citation and Context

The rule derives its name from the published appellate decision: Van Camp v. Van Camp (1921) 53 Cal. App. 17, 199 P. 885

The Van Camp rule is the counterpart to the Pereira rule. Courts will choose the method that achieves the most equitable result, typically applying the Van Camp approach when the increase in business value is attributable to valuable capital rather than personal services.

Explanation of Application

When Applied: The Van Camp method is generally used for capital-intensive businesses, passive investments, or businesses where market conditions (like real estate booms, industry trends, or brand reputation) are the primary factor driving profits and appreciation.
Community Compensation: The community estate is compensated by assigning a reasonable, fair market salary for the managing spouse’s efforts during the marriage. This amount is designated as Community Property.
Separate Property Preservation: If the spouse was adequately compensated (either through salary or benefits) during the marriage, the remaining growth and value of the business are preserved as the owning spouse’s Separate Property.

The Van Camp Formula

The Community Property Share (CP) is calculated as follows:

CP Value = (Reasonable Market Salary for Spousal Labor) – (Amount Already Paid to Community Expenses / Salary Received)

Result: Any value remaining in the business after the community’s labor is compensated is classified as Separate Property (SP).

Practical Example

Scenario: A Husband (H) owned a publicly-traded stock portfolio worth $1 million before marriage (SP). During the 10-year marriage, H spent 5-10 hours per week managing the portfolio, which grew to $5 million primarily due to an aggressive bull market.

Court’s Reasoning: The appreciation of $4 million is mainly passive (market-driven), so the Van Camp rule applies.
Calculation: The court determines a reasonable salary for H’s limited management services over 10 years (e.g., $5,000 per year for 10 years = $50,000). If this compensation was not already received through community funds, $50,000 is deemed Community Property.
Apportionment: $50,000 is split as community property, while the remaining $4,950,000 is confirmed as H’s Separate Property.

Published California Cases Citing Van Camp

The Van Camp rule has been continually applied and refined by California courts, often alongside the Pereira rule, to ensure equitable division.

Beam v. Bank of America (1971) 6 Cal. 3d 12, 17:
The Supreme Court solidified that courts must choose between the Van Camp and Pereira methods based on which factor (capital investment or personal activity) was the chief contributing factor in realizing income and profits.
In re Marriage of Brooks (2019) 33 Cal. App. 5th 576:
This case affirmed the use of the Van Camp approach for stock appreciation where the spouse’s role was supportive (programmer without a key leadership role) and they were adequately compensated, proving the growth was due to others’ efforts and the business’s capital.
In re Marriage of Dekker (1993) 17 Cal. App. 4th 842:
Though ultimately applying the Pereira rule, this case highlights the court’s discretion to choose the most equitable method based on the facts, even if the business was formed during the marriage.