Beam v. Bank of America

• Decision Date: 04 November 1971
• Docket Number: S.F. 22786
• Citation: 6 Cal.3d 12,490 P.2d 257,98 Cal.Rptr. 137
• Court: California Supreme Court
• Parties: , 490 P.2d 257 A. Walter BEAM, Plaintiff and Respondent, v. BANK OF AMERICA, as Executor, etc., Defendant and Appellant. In Bank

Page 137

98 Cal.Rptr. 137

6 Cal.3d 12, 490 P.2d 257

A. Walter BEAM, Plaintiff and Respondent, v. BANK OF AMERICA, as Executor, etc., Defendant and Appellant.

S.F. 22786.

Supreme Court of California,

In Bank.

Nov. 4, 1971.

Rehearing Denied Dec. 2, 1971.

Kerner, Colangelo & Imlay, Marvin J. Colangelo and Warner B. Berry, San Francisco, for defendant and appellant.

Goth, Dennis & Aaron and James M. Dennis, Redwood City, for plaintiff and respondent.

TOBRINER, Associate Justice.

Mrs. Mary Beam, defendant in this divorce action, appeals from an interlocutory judgment awarding a divorce to both husband and wife on grounds of extreme cruelty. ¹ The trial court determined that the only community property existing at the time of trial was a promissory note for $38,000, and, upon the husband's stipulation, awarded this note to the wife; the court found all other property to be the separate property of the party possessing it. The court additionally awarded Mrs. Beam $1,500 per month as alimony and granted custody of the Beam's two minor children to both parents, instructing the husband to pay $250 per month for the support of each child so long as the child remained within the wife's care.

On this appeal, Mrs. Beam attacks the judgment primarily on the grounds that the trial court (1) failed adequately to compensate the community for income attributable to the husband's skill, efforts and labors expended in the handling of his sizable separate estate during the marriage, and (2) erred in suggesting that community living expenses, paid from the income of the husband's separate estate, should be charged against community income in determining the balance of community funds. In addition, the wife challenges the court's categorization of several specific assets as separate property of her husband. For the reasons discussed below, we have concluded that substantial precedent and evidence support the various conclusions under attack; thus we conclude that the judgment must be affirmed.

1. The Facts.

Mr. and Mrs. Beam were married on January 31, 1939; the instant divorce was granted in 1968, after 29 years of marriage. Prior to and during the early years of the marriage, Mr. Beam inherited a total of $1,629,129 in cash and securities, and, except for brief and insignificant intervals in the early 1940's, he was not employed at all during the marriage but instead devoted his time to handling his separate estate and engaging in private ventures with his own capital. Mr. Beam spent the major part of his time studying the stock market and actively trading in stocks and bonds; he also undertook several real estate ventures, including the construction of two hotel resorts, Cabana Holiday I at Piercy, California, and Cabana Holiday II at Prunedale, California. Apparently, Mr. Beam was not particularly successful in these efforts, however, for, according to Mrs. Beam's own calculations, over the lengthy marriage her husband's total estate enjoyed only a very modest increase to $1,850,507.33.

Evidence introduced at trial clearly demonstrated that the only moneys received and spent by the parties during their marriage were derived from the husband's separate estate; throughout the 29 years of marriage Mrs. Beam's sole occupation was that of housewife and mother (the Beams have four children). According to the testimony of both parties, the ordinary living expenses of the family throughout the marriage amounted to $2,000 per month and, in addition, after 1960, the family incurred extraordinary expenses (for travel, weddings, gifts) of $22,000 per year. Since the family's income derived solely from Mr. Beam's separate estate, all of these household and extraordinary expenses were naturally paid from that source.

During the greater part of the marriage (1946 to 1963) the Beams resided in a home on Spencer Lane in Atherton, California. In 1963 the family sold the Spencer Lane house and acquired a smaller residence in Atherton, on Selby Lane. This home was sold in 1966 for a cash down payment, which was apparently divided between the parties, and for a promissory note in the sum of $38,000, payable in monthly installments of $262.56. The trial court concluded that this note was community property but, upon Mr. Beam's stipulation, awarded the entire proceeds of the note to the wife.

On this appeal, Mrs. Beam of course does not question the disposition of the promissory note, but does attack the trial court's conclusion that this asset was the only community property existing at the time of the divorce. Initially, and most importantly, the wife contends that the trial court erred in failing to find any community property resulting from the industry, efforts and skill expended by her husband over the 29 years of marriage. We address this issue first.

2. The trial court did not err in concluding that there was no net community property accumulated during the marriage from the earnings of Mr. Beam's separate property.

Section 5108 of the Civil Code provides generally that the profits accruing from a husband's separate property are also separate property. ² Nevertheless, long ago our courts recognized that, since income arising from the husband's skill, efforts and industry is community property, the community should receive a fair share of the profits which derive from the husband's devotion of more than minimal time and effort to the handling of his separate property. (Pereira v. Pereira (1909) 156 Cal. 1, 7, 103 P. 488; see Millington v. Millington (1968) 259 Cal.App.2d 896, 907--908, 67 Cal.Rptr. 128 and cases cited therein.) Furthermore, while this principle first took root in cases involving a husband's efforts expended in connection with a separately owned farm or business (e.g., Pereira v. Pereira (1909) 156 Cal. 1, 103 P. 488; Huber v. Huber (1946) 27 Cal.2d 784, 792, 167 P.2d 708; Van Camp v. Van Camp (1921) 53 Cal.App. 17, 29, 199 P. 885; Stice v. Stice (1947) 81 Cal.App.2d 792, 796, 185 P.2d 402) our courts now uniformly hold that '(a)n apportionment of profits is required not only when the husband conducts a commercial enterprise but also when he invests separate funds in real estate or securities. (Citations.)' (Estate of Neilson (1962)57 Cal.2d 733, 740, 22 Cal.Rptr. 1, 5, 371 P.2d 745, 749; see Margolis v. Margolis (1952) 115 Cal.App.2d 131, 135, 251 P.2d 396). Without question, Mr. Beam's efforts in managing his separate property throughout the marriage were more than minimal (cf. Weinberg v. Weinberg (1967) 67 Cal.2d 557, 567--568, 63 Cal.Rptr. 13, 432 P.2d 613; Cozzi v. Cozzi (1947) 81 Cal.App.2d 229, 232, 183 P.2d 739; Estate of Barnes (1933) 128 Cal.App. 489, 492, 17 P.2d 1046), and thus the trial court was compelled to determine what proportion of the total profits should properly be apportioned as community income.

Over the years our courts have evolved two quite distinct, alternative approaches to allocating earnings between separate and community income in such cases. One method of apportionment, first applied in Pereira v. Pereira (1909) 156 Cal. 1, 7, 103 P. 488 and commonly referred to as the Pereira approach, 'is to allocate a fair return on the (husband's separate property) investment (as separate income) and to allocate any excess to the community property as arising from the husband's efforts.' (Estate of Neilson (1962) 57 Cal.2d 733, 740, 22 Cal.Rptr. 1, 4, 371 P.2d 745, 748.) ³ The alternative apportionment approach, which traces its derivation to Van Camp v. Van Camp (1921) 53 Cal.App. 17, 27--28, 199 P.2d 885, is 'to determine the reasonable value of the husband's services * * *, allocate that amount as community property, and treat the balance as separate property attributable to the normal earnings of the (separate estate).' (Tassi v. Tassi (1958) 160 Cal.App.2d 680, 690, 325 P.2d 872, 878.) ⁴

In making such apportionment between separate and community property our courts have developed no precise criterion or fixed standard, but have endeavored to adopt a yardstick which is most appropriate and equitable in a particular situation * * * depending on whether the character of the capital investment in the separate property or the personal activity, ability, and capacity of the spouse is the chief contributing factor in the realization of income and profits (citations). * * * (Par.) In applying this principle of apportionment the court is not bound either to adopt a predetermined percentage as a fair return on business capital which is separate property (the Pereira approach) nor need it limit the community interest only to (a) salary fixed as the reward for a spouse's service (the Van Camp method) but may select (whichever) formula will achieve substantial justice between the parties. (Citations.)' (Logan v. Forster (1952) 114 Cal.App.2d 587, 599--600, 250 P.2d 730, 737; see Millington v. Millington (1968) 259 Cal.App.2d 896, 910, 67 Cal.Rptr. 128; Haldemann v. Haldemann (1962) 202 Cal.App.2d 498, 505, 21 Cal.Rptr. 75; Tassi v. Tassi (1958) 160 Cal.App.2d 680, 691, 325 P.2d 872.) The trial court in the instant case was well aware of these apportionment formulas and concluded from all the circumstances that the Pereira approach should be utilized. As stated above, under the Pereira test, community income is defined as the amount by which the actual income of the separate estate exceeds the return which the initial capital investment could have been expected to earn absent the spouse's personal management. In applying the Pereira formula the trial court adopted the legal interest rate of 7 percent simple interest as the 'reasonable rate of return' on Mr. Beam's separate property; although the wife now attacks this 7 percent simple interest figure as unrealistically high, at trial she introduced no evidence in support of any other more 'realistic' rate of return and, as we stated explicitly in Weinberg v. Weinberg (1967) 67 Cal.2d 557, 565, 63 Cal.Rptr. 13, 17, 432 P.2d 709, 713, in...