Brandes v. Brandes (In re Brandes)

• Decision Date: 14 August 2015
• Docket Number: D062729
• Citation: 239 Cal.App.4th 1461,192 Cal.Rptr.3d 1
• Court: California Court of Appeals Court of Appeals
• Parties: IN RE the MARRIAGE OF Linda F. and Charles H. BRANDES. Linda F. Brandes, Appellant, v. Charles H. Brandes, Appellant.

239 Cal.App.4th 1461

192 Cal.Rptr.3d 1

IN RE the MARRIAGE OF Linda F. and Charles H. BRANDES.Linda F. Brandes, Appellant,

v.Charles H. Brandes, Appellant.

D062729

Court of Appeal, Fourth District, Division 1, California.

Filed August 14, 2015

As Modified on Denial of Rehearing September 9, 2015

Sandler, Lasry, Laube, Byer & Valdez, Edward I. Silverman, San Diego; Karcher Harmes, Kathryn E. Karcher ; Dick & Wagner, Stephen James Wagner, Sacramento; Jones Barnes, Rex L. Jones, III, San Diego, Julie R. Barnes and Matthew K. Strauss, for Appellant Linda F. Brandes.

Law Offices of Marjorie G. Fuller, Marjorie G. Fuller, Fullerton; Wasser, Cooperman & Carter, Dennis M. Wasser, Bruce E. Cooperman and Amy L. Rice, Los Angeles, for Appellant Charles H. Brandes.

McCONNELL, P.J.

In this dissolution action, Linda F. Brandes (Linda) appeals a judgment awarding Charles H. Brandes (Charles) a business he founded before the marriage, Brandes Investment Partners (BIP),¹ as his separate property, and awarding the community an equitable allocation—under the Pereira v. Pereira (1909) 156 Cal. 1, 103 P. 488 ( Pereira ) approach for the early period during which the growth was primarily attributable to his personal efforts, and under the Van Camp v. Van Camp (1921) 53 Cal.App. 17, 199 P. 885 ( Van Camp ) approach for the later period during which the growth was primarily attributable to other factors. The Pereira approach allocates a fair return to the separate property investment and the balance of growth to the community, and the Van Camp approach allocates the reasonable value of the owner spouse's services to the community and the balance of growth to separate property. ( In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 853–854, 21 Cal.Rptr.2d 642 ( Dekker ).)

Under a variety of theories, Linda contends the court erred by not determining the community owns all or most of BIP. For instance, she asserts BIP became a completely new business during the marriage, and thus it lost its separate property characterization.

Additionally, Linda contends the court erred by denying her prejudgment interest on her share of the community's interest in BIP as of the end of the Pereira period, by characterizing profit distributions BIP labeled as W–2 income as Charles's separate property, and by awarding Charles 10,000 shares of BIP stock he purchased from a third party in two transactions during the marriage. Linda claims 4,000 of the shares are community property because Charles used community funds to purchase them. She asserts the remaining 6,000 shares are presumptively community property under the lender's intent doctrine, because the purchase was financed under a promissory note entered into during the marriage, and Charles did not rebut the presumption by showing the seller relied primarily on his separate property for payment.

Charles also appeals, contending the court erred by awarding Linda $450,000 per month in spousal support. He asserts that under Family Code section 4322,² she is not entitled to any support because, if invested prudently, her share of the community property is sufficient to cover her actual postseparation expenses of approximately $100,000 per month. Alternatively, he asserts the support is excessive given her actual expenses.

We partially agree with Linda on the lender's intent doctrine. The doctrine applies to the percentage of the 6,000 shares purchased under the promissory note, and the court erred by not finding in accordance with the community property presumption since Charles did not rebut it. In all other respects, we disagree with Linda's theories. We decline to resolve Charles's appeal, because on remand it may become moot. The court must revisit the spousal support issue, because an order is based, in part, on a spouse's separate estate (§ 4320, subd. (e)), and Linda's separate estate will likely increase.

FACTUAL AND PROCEDURAL BACKGROUND

In 1974, Charles founded BIP to provide investment advisory services in exchange for fees based on the percentage of clients' assets under management. Charles and Linda met in 1983, when BIP was only marginally successful. That year, BIP managed assets of $8.2 million and he had income of $44,148.

Charles and Linda each had two children from prior marriages. After dating for a few months, Charles began proposing marriage, but Linda refused "unless he could show some initiative to make enough money to support" a family of six. At Linda's request, he "changed his appearance, changed his clothes, changed his car and changed his work hours."

The parties wed in August 1986. At that time, Charles owned 90 percent of BIP. In 1985, Charles Brown, who was Charles's long-time client, purchased 10 percent of the business (10,000 shares after stock splits). BIP's managed assets were approximately $20 million on the date of marriage, and by the end of 1986 they rose to $63 million. BIP continued to grow, and Charles's income eventually afforded the parties "a very opulent lifestyle."

In June 2004, the parties separated. By then, Charles had purchased Brown's interest in BIP, and BIP's managed assets were $85 billion. The community estate was worth approximately $208 million, excluding any interest in BIP.

Charles petitioned for dissolution, and in August 2005 the parties stipulated to the distribution of community bank accounts and real properties. Under the stipulation, Charles was awarded homes in Rancho Santa Fe and Borrego Springs, and Linda was awarded six homes, including a penthouse on Park Avenue in New York City, a beachside home in Del Mar, and a home in Rancho Santa Fe. The unencumbered value of Linda's real properties was approximately $50 million, and her total separate estate was approximately $100 million.

In July 2005, the family court entered a judgment of dissolution as to marital status only. Unresolved financial issues were the subject of two separate trials referred to as Phase I and Phase II.

Phase I was tried in 2008 and, as is relevant here, the issue was how the community's interest in BIP should be characterized. Linda argued the community owned 100 percent of BIP because during the marriage it became a completely different business. In other words, Charles effectively "started a new business during the marriage."

Alternatively, Linda argued BIP is "virtually all" community property under either a pure Pereira approach, or what she called a "fixed-ratio" theory. Under the fixed-ratio theory, Pereira applied between the date of marriage and the date BIP's growth became attributable to factors other than Charles's personal efforts, in her view no earlier than 1995, and from that point the community had an ownership interest in BIP commensurate with its interest in BIP's growth at the close of the Pereira period.

Charles argued BIP retained its separate property character throughout the marriage. He also argued that since the lion's share of its growth was chiefly attributable to factors other than his personal efforts, the community's interest was limited to reasonable compensation for his services under the Van Camp approach.

In September 2009, the court issued a final statement of decision on Phase I. The court characterized BIP as Charles's separate property.³ The court used a hybrid approach in allocating BIP's increased value between Charles and the community. It determined that between August 1986 and 1991, Charles's personal efforts were the primary factor in the growth, and thus the Pereira approach applied for that period. The evidence showed that between 1986 and 1989, Charles was the sole manager of the business; he established BIP's investing philosophy; he was the central figure in business marketing; his track record attracted investors; and he hired employees, trained them, and directed their activities. In 1987, BIP managed $107 million in assets. BIP's growth slowed somewhat between 1987 and 1990, and at the close of 1991 its managed assets were $213 million.

Between 1992 and June 2004, BIP's managed assets grew to approximately $85 billion. The court determined that during this period, the growth was chiefly attributable to factors other than Charles's personal efforts, and thus allocation under the Van Camp approach was proper. Linda's expert testified that 99.75 percent of BIP's growth occurred after 1991.

The evidence showed that Glen Carlson had become BIP's chief executive officer, and Jeff Busby its chief operating officer. They recognized "real growth potential was in institutional, not individual, markets," but BIP needed managed assets of $1 billion to compete for institutional clients. Carlson and Busby advised Charles that BIP "would only continue to moderately grow unless it could enter the asset allocation programs of large brokerage firms, the so-called WRAP programs."⁴ Carlson and Busby proposed that BIP enter the WRAP market with a "pure international stock fund," which "represented a great departure from any existing fund the business offered." Busby and Carlson researched performance data for international stocks and "created a model portfolio of 35 stocks...."

Initially, Charles was not receptive because the fee structure was lower on WRAP programs. Carlson and Busby persisted, and Charles eventually acquiesced. The new fund, called IEP, was launched in June 1990.

Further, Carlson and Busby urged Charles to hire Barry O'Neil, a Dean Witter manager who understood WRAP programs, to market IEP to large brokerage firms. O'Neil was hired in February 1991, and that July he convinced Dean Witter to select BIP. Also in 1991, an executive committee was formed for BIP, after which management decisions were made by the committee rather than "the dictates of Charles." In addition to internal factors, after 1991 BIP's growth was driven by external factors, including bull markets and the popularity of foreign investing.

The court agreed with Charles's argument the community had already been substantially overcompensated for his...