Divorce isn’t just a personal transition, it’s a financial inflection point. For business owners, equity stakeholders, or professionals with significant pre-marital investments, the division of assets can be anything but straightforward. In California, where community property rules govern dissolution, the distinction between what’s yours and what’s shared often comes down to two deceptively simple names: Pereira and Van Camp.

These are not just formulas. They are legal frameworks that can dramatically impact the allocation of business growth, investment returns, and passive appreciation during a marriage. The court’s choice between them is not mechanical, it’s interpretive. And in high-asset divorces, that interpretation can affect millions.

Community vs separate property: Where the lines begin to blur
California’s community property regime begins with a core distinction: assets and income earned during the marriage belong equally to both spouses, while property owned before the marriage, as well as gifts and inheritances, remain separate.

But the rules aren’t self-executing, particularly when pre-marital assets grow in value during the marriage. If a business, for example, was started by one spouse before the wedding but expanded significantly over the years, how should that increase be apportioned?

Pereira and Van Camp
That’s where Pereira and Van Camp come into play.

When courts must determine what portion of a business or investment’s appreciation belongs to the community versus the individual, they turn to one of these two models, each grounded in a fundamentally different theory of value creation.

The Pereira Formula emphasizes effort. It is typically applied when the court finds that growth during the marriage was driven by the active involvement of a spouse, through leadership, labor, or strategic management. In such cases, the court attributes a “reasonable rate of return” on the original separate property and considers the remainder of the growth as community property.

The Van Camp Formula emphasizes passive or external forces. If a business or asset increased in value due to market conditions, brand momentum, or operational infrastructure independent of a spouse’s personal contribution, the court will use Van Camp. Under this model, the court assigns a fair salary for the spouse’s role, subtracts any compensation and community expenses already received, and attributes the rest of the appreciation to separate property.

The choice between these two approaches can result in vastly different distributions of wealth.

When courts apply Pereira
The Pereira method is used when the success of a business is inseparable from a spouse’s active contributions. For example:

-- A partner in a boutique consulting firm who built the book of business during the marriage.
-- A restaurateur whose daily presence, vision, and leadership directly drove the business’s expansion.

In both examples, courts are likely to apply Pereira, allocating a return on the pre-marital investment to the owning spouse and dividing the balance of growth as community property.

When Van Camp is the right fit
Van Camp applies when the growth is attributable to external conditions or passive investment. This might include:

-- A spouse who held pre-marital stock options in a tech company that later went public.
-- An investor whose ownership stake in a manufacturing firm increased in value despite minimal involvement.

In these cases, the court will quantify a reasonable value for services rendered (if any), subtract compensation already received, and treat the rest of the asset as separate property.

The legal and strategic implications
The core question in choosing between Pereira and Van Camp is this: Was it effort or environment that created value?

To answer that, courts examine:

-- Level of active involvement – Was the owning spouse instrumental in operations?
-- Nature of the business – Is the business service-based or capital-intensive?
-- Magnitude of growth – How much did the asset appreciate during the marriage?
-- Compensation received – Was the spouse paid a fair salary for their efforts?

This is not a mathematical exercise, it is a factual inquiry shaped by argument, evidence, and legal interpretation. The court’s discretion is broad. The stakes are high. And for professionals and entrepreneurs navigating divorce, the outcome can hinge on how effectively counsel can position these facts.

Why sophisticated counsel matters
In divorces involving business valuations, equity interests, and pre-marital investments, the Pereira and Van Camp formulas are not just legal tools, they are battlegrounds. Each carries strategic consequences for the client’s post-divorce financial future.
 

About the law firm
Moradi Neufer works with executives, founders, and high net worth individuals across California who need more than generic family law advice.

About the author
Ernest Baello is an advocate and litigator, specializing in complex law actions in three of the largest metropolitan areas in the US – the Bay Area, Los Angeles, and New York City. For over 14 years, he has developed experience working through a variety of challenges with his clients. He has represented hundreds of individuals, including executives and high net worth clients, in matters involving custody, child support, spousal support, property division, domestic violence, move-aways, business valuations, equity compensation, post-judgment requests, and premarital and post-marital agreements. Prior to becoming a lawyer, Ernest Baello was a software developer for the National Center for Supercomputing Applications.