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Court of Appeal, Sixth District, California.

In the Marriage of Anand JAGANNATHAN and Shobhana Anand. Anand JAGANNATHAN, Respondent, v. Shobhana ANAND, Appellant.

No. H011882.

Decided: March 04, 1996

Husband, Anand Jagannathan, and wife, Shobhana Anand, were married on August 19, 1983 and separated on August 23, 1991. The parties stipulated to the appointment of a Judge Pro Tem (hereafter the trial court) to resolve a variety of issues concerning the dissolution, including the division of community property. Their marriage was dissolved by order of the trial court, effective March 12, 1993, and following a lengthy trial, the court issued its statement of decision and judgment concerning spousal and child support and the division of community property.

In this appeal, wife challenges that portion of the judgment awarding to husband as his sole and separate property stock of Banyan Systems Incorporated (Banyan), purchased by husband one week before he and wife were married. She also contends the trial court improperly relied on husband's valuation of certain community property jewelry and that the trial court's division of furniture and furnishings was issued without giving wife a fair opportunity to present her claims regarding this division. Finally, she contends the trial court abused its discretion in ordering her to pay for the balance of her own attorneys fees.

We conclude the trial court erred in characterizing the Banyan stock entirely as husband's separate property and remand the case to allow the court to fashion an appropriate and equitable method of allocating the community property interest in the stock, taking into consideration all the circumstances of the case. The remainder of wife's claims are meritless, and we affirm the trial court's division of jewelry and furniture and its order requiring wife to pay for her own attorneys fees.

Factual Background

Several years before the marriage, husband joined Data General in Massachusetts as a principal engineer, where he managed a group of engineers in developing certain hardware products. One of his projects was to develop a new kind of hardware for a file server. A file server is a special kind of computer which is connected to multiple desk top computers providing for common storage for sharing files and sharing a printer. While Data General was developing the hardware for the file server, husband on his own time was developing ideas for pertinent software for the file server. He had been formulating these ideas and keeping written notes ever since his doctorate days and completed much of this work during the time he was at Data General.

In May of 1983, husband and Dave Mahoney, who was a manager of networking at Data General, left Data General to start a new company focusing on the file server software ideas developed by husband. A technical engineer, Larry Floryan, also left Data General and joined them in June 1983. Husband's ideas, the business plan for the new company and financial projections relating to the implementation of the business plan were memorialized in writing by May 1983. In the first week of July 1983, Graylock, a venture capitalist group, informed husband and Mahoney it would invest in the new company. At the end of July, the new company was given its name, and on August 1, 1983, Banyan was incorporated with husband, Mahoney and Floryan being the three founders.

The founders informally divided the stock of Banyan between themselves. Points were assigned to each founder based on a recognition of each of their respective contributions to Banyan. Husband's points were awarded primarily because he brought the concept of the multi-function file server as well as its market applications to the company. Mahoney brought management skills and contact with potential investors, and Floryan brought technical engineering skills important to production of the software. About 75 percent of husband's points were allocated based on his efforts in the conception and planning phases of the company, efforts which occurred prior to Banyan's incorporation. The remaining 25 percent were allocated based on his anticipated contributions during the execution or production phase of the company, efforts which occurred after incorporation. This informal allocation was never reduced to a formal agreement.

Husband purchased 486,750 shares of Banyan stock on August 12, 1983, with separate property funds. One week after husband purchased his stock, he traveled to India and married wife. They were married on August 19, 1983.

Banyan shipped its first product in 1984 and began product sales in the first quarter of 1985. In 1984, husband and Mahoney sold back nonvested shares of stock to Banyan to create a pool of founders stock with which to attract and hire a vice president of the engineering department. Husband sold back 161,500 shares, and Mahoney sold back 50,000 shares.

Husband left Banyan to start another company called Reach Corporation in December 1988. Banyan went public August 6, 1992. The market value of the stock at the time of trial was in the range of $20 per share. Mahoney testified the stock increased in value from the time the company was founded to the time it went public. There was a market for the stock before it went public. This consisted of venture capitalists and other investors who could buy stock from current shareholders in the company. In 1991, some of this stock sold from $2.50 to $4.55 per share. When the stock initially went public, it sold for $10.50 per share.

1. The Stock Purchase

Husband purchased the Banyan stock pursuant to a Management Purchase Agreement signed by Mahoney, on behalf of Banyan, and husband. The Management Purchase Agreement provided that husband warranted he was, at the time of signing the agreement, a management or other key employee of the company. Husband agreed to purchase, subject to the conditions of the agreement, 486,750 shares of $.01 par value common stock of Banyan at the purchase price of $.01 per share. The purchase price was to be paid by check to the order of the company. The agreement further provided “Upon receipt of payment by the Company for the Shares, the Company hereby agrees to issue to the undersigned one or more certificates in his name for that number of Shares purchased by the undersigned. The Shares, upon issue, will be validly issued and outstanding, fully paid and non-assessable.” The agreement further states that the undersigned “is purchasing the Shares for his own account for investment and with no intention of distributing or reselling any of them.”

The stock was subject to certain restrictions and conditions. Paragraph 4A provided: “If the undersigned for any reason whatsoever (including without limitation voluntary or involuntary termination, death or disability) ceases to be employed by the Company prior to [four years from the date of acceptance of the agreement], then the Company shall have the right, but not the obligation, to purchase or to designate one or more purchasers for (i) all or any portion of the [nonvested] Shares ․ held by the undersigned at a price per share equal to the price per share paid by the undersigned for those shares acquired hereunder for cash․”

Paragraph 4B provided that each month an increasing percentage of shares would become vested, and hence not subject to the restrictions in Paragraph 4A. “Shares equal in number to the product of (i) the total number of Shares purchased hereunder ․ and (ii) a fraction, the numerator of which is the number of whole months which have expired from the Acceptance Date hereof and the denominator of which is 48, shall at the time in question be “vested Shares” for the purposes of this Agreement.” The vested shares, nevertheless were subject to the repurchase options of the company set forth in paragraph 5. Paragraph 5 in essence gave the company the right of first refusal to purchase at fair value any vested shares the undersigned may wish to sell. This right to repurchase expired four years from the date of acceptance of the agreement.

The vesting schedule and repurchase rights of the company set out in paragraphs 4 and 5 of the agreement were imposed by the venture capitalists as a condition of financing. Considerable testimony was introduced at trial regarding the meaning and purpose of these paragraphs, none of which came from the venture capitalist partners. Husband believed the purpose of the clause was to preclude him from leaving the company and attempting to compete with Banyan. The clause was simply an incentive to stay. He did not believe Banyan would have exercised its option to repurchase his shares had he left voluntarily, because of his work in founding the company.

Mahoney, who was the chief executive officer and chairman of the board of Banyan at the time of trial, testified the buy-back option in the agreement was a requirement of the investors. The purpose was to give the company the right to repurchase shares of stock should a founder leave the company and the necessity arise for reissuing stock to new management personnel. He also testified the repurchase clause of the agreement could be interpreted as rewarding people operating and producing a service for the company during the four year vesting period. Neither he nor husband had signed a transfer of technology agreement; however, he believed the Management Purchase Agreement encapsulated nondisclosure and noncompete agreements. Mahoney was aware of no case in which the company had failed to repurchase a departing employee's nonvested shares. Subsequent evidence established that Banyan bought back stock of departing employees in 22 out of 23 opportunities.

Expert witnesses for both husband and wife gave opinions concerning the meaning of the repurchase and vesting clauses in the Management Purchase Agreement. Husband's experts testified that venture capitalists require vesting schedules for the following reasons: (1) to repurchase shares of stock from departing key employees for use in attracting replacement personnel; (2) to act as “golden handcuffs,” encouraging managers to stay with the company; (3) to give the investors the ability to reacquire a portion of the shares in the event the invention does not have value; (4) to set a precedent on vesting schedules for future employees; and (5) to serve as a surrogate for a formal technology assignment by preventing the inventor from taking his or her idea elsewhere and competing without serious consequences. It is generally assumed that the person being tied to the company is important.

Wife's experts testified that investors use vesting schedules and repurchase clauses because they do not want founders1 to walk away from the company during the start-up phase with all their stock, in essence leaving the remaining employees to bring value to the stock through their efforts. The investors want the founders to stay in order to make the significant contributions promised by the founders that are necessary to the successful start-up of the company. If a founder leaves the company, the company has no value. If the founders outgrow their usefulness or are unable to make the contributions expected, they can be removed and the stock repurchased can be used to attract replacement personnel. The clause also implicitly prevents the founder from competing with the company.

The experts also rendered opinions on whether husband was earning the stock during the time he worked at Banyan, taking into account the purposes of the Management Purchase Agreement. Husband's experts testified the stock was not earned during the marriage. Robert McLaughlin testified that the consideration paid for the stock purchased by husband consisted of cash in the amount of $4,867.50, and services rendered by husband prior to the date of Banyan's incorporation, including his invention of a networking system and marketing concept. Pursuant to the agreement the shares were fully paid and nonassessable, meaning the corporation had received all of the consideration required in order for the shares to be issued. The agreement did not require husband to perform at a certain level, nor did it require him to meet certain goals or milestones. He also concluded that because of the extremely short time within which the venture capitalists committed to funding and the high dollar amount of funding, the investors regarded husband's concept as an extremely valuable invention as of the date of incorporation.

McLaughlin further testified that shares of stock are earned on the day they are issued. A vesting schedule, required by venture capitalists, does not mean shares are being earned during the vesting period. He disagreed that post issuance contributions of a founder earn the right to keep stock. Under the Management Purchase Agreement, the only way the shares would be repurchased was if the founder ceased to be employed by the company. He admitted the company's option to repurchase the shares dissipated over time, as the employee remained with the company, but he did not believe any specific level of effort or performance was required to reduce the company's buy-back option.

Steven Popell, husband's second expert, agreed that there did not appear to be any specific performance requirement set forth in the vesting clause of the agreement. However, it inherently assumed the employee would perform at a level just above where he or she would be fired. He admitted he did not know the actual standard of performance to which husband was held at Banyan. Furthermore, husband's post-incorporation efforts were certainly important, to the extent that he was part of the efforts to move a very sound, new concept from the planning stage through the execution stage. Husband was an important part of the execution team which was put together after incorporation. Furthermore, based on the information in the case, since it was husband's concept and idea upon which the company was founded, at least in the early stages of post-incorporation husband was a key employee.

Wife's experts testified the repurchase clause of a stock management purchase agreement basically establishes ownership rights in the founding employees that they may earn by continued employment and contribution. Assuming the business plan is not being met or the expected contributions of an employee are not being fulfilled, the company can change the compensation package of the employee by repurchasing shares of stock. The fact that nonvested shares were given in this case indicated the shares were given for future contributions. The 48 month vesting schedule was not uncommon and the purpose was to motivate and compensate the employee for staying with the company.

To rebut husband's argument that the stock purchase was offered in exchange for the creation of the file server concept, wife's expert, John Nesheim, testified based on his review of the prospectus of the company issued before its first public offering, there were no notations concerning special compensation arrangements for the founders or stockholders. The financial records revealed no evidence of an acquisition of technology or product from an existing individual for value. He also testified where stock is given as a reward for past contributions, it usually vests instantaneously. Another expert, Elmer Galbi, testified that if someone brought a valuable, patentable idea to the table of a start-up company, and received stock for that idea, the stock would of necessity be vested. In general, the amount of salary and stock given to a person at the outset is going to be based upon that person's expected future contributions.

Finally, several of the experts testified to the differences between the owner of a stock option and the owner of stock. McLaughlin testified that a stock owner is quite different than an owner of a stock option. A shareholder has a right to vote, call meetings of shareholders, seek to remove directors, receive dividends and inspect records. An option holder has none of these rights. An option is merely a contract that gives the right to purchase shares in the future if the terms of the contract are satisfied. Galbi testified that while there were differences in a stock option and stock purchase in terms of the voting rights of the purchaser, in terms of financial value to the owner, there were no differences.

Statement of Decision

The trial court concluded all 486,750 shares of Banyan stock purchased by husband were husband's separate property. The court reasoned the stock was purchased prior to the marriage with separate property funds. The court felt this was “in contrast to an award of a stock option that would have to be earned by the employee.” The purchase of shares was further differentiated from the grant of a stock option because the purchaser of shares has the right to control the company whereas the owner of a stock option has no rights as a shareholder but owns merely a contract right to receive benefits in the future.

More significantly, the trial court found that the consideration for the stock was not only cash from premarital funds but also husband's “substantial efforts and contribution to Banyan in the creation of the multi-function file server concept and the identification of the market area for the multi-function file server. These efforts encompassed a number of years of experience and work prior to the date of the parties' marriage in developing the concept .” Indeed, the concept was so worthwhile and valuable that husband was able to convince several people to leave their jobs at Data General to risk starting a new business, and venture capitalists were willing to invest $2.7 million dollars in the new company. Husband's concept and identification of the market was the ground work for Banyan. His ideas for the product and the market were obviously very successful. The court was convinced that the file server concept was a “break through,” was “innovative” and was created by husband before he met and married wife.

The trial court next held that the vesting period in the Management Purchase Agreement did not “convert” some or all of the shares to community property. The court noted the vesting schedule was a prerequisite of financing imposed by the investors. The purposes of such a vesting schedule included: to provide golden handcuffs on employees to keep the employee and the idea at the corporation; to keep the founders team together; to provide for replacement of key employees in the event the employee is terminated; and to recapture the investor's assets should the concept or product not be as valuable as originally thought. The court further concluded there was no evidence the vesting schedule was imposed in order to require or encourage any specific performance level on the part of the employee. The court noted that the Management Purchase Agreement did not impose any milestones or goals on the purchasers of the shares. There was no evidence that husband had to meet any level of performance at work in order to keep his shares. The only prerequisite to keeping the shares was continued employment with husband putting forth minimal efforts, or performing at a level above that which would get him fired. To the extent husband was putting forth effort while working at Banyan, he was receiving adequate compensation for these efforts.2

The trial court also found that husband, Mahoney and Floryan had allocated their shares of stock according to each person's contribution to the new company. Husband was allocated 75 percent of his own stock based upon the concept and planning stages of the company and 25 percent based upon expected contributions during the execution phase of the business. Although the court held all the Banyan stock was the separate property of husband, it also concluded that if a claim could be made that 25 percent of the stock was community property, husband returned in excess of this amount in 1984, when he sold back to Banyan 161,500 shares of stock. Hence, the remaining shares of stock were all husband's separate property.

The trial court finally found wife had introduced no testimony to justify a claim to a community property interest under either Van Camp v. Van Camp (1921) 53 Cal.App. 17 or Pereira v. Pereira (1909) 156 Cal. 1. However, the court noted that the community had been fully compensated for the services of husband due to his salary of $52,000 per year. Although husband performed valuable services for Banyan and held responsible positions within Banyan during the years he was employed, husband was more than adequately compensated for these services.

The parties had agreed that all Reach Corporation stock was community property, and wife was awarded one half of the 1.6 million shares owned by the parties. (CT 715) Husband had exercised stock options granted by Banyan during the marriage before he left the company in 1988. These shares of stock were also conceded to be community property and divided accordingly by the trial court.


Wife concedes that the Banyan stock was purchased by husband before the marriage with separate property funds and that husband certainly has a separate property interest in the stock. However, wife contends that because the right to retain the stock and realize its full fair market value was conditioned on husband's continued employment with Banyan for four years pursuant to the Management Purchase Agreement, husband was earning the stock during the marriage. Since earnings during the marriage are considered community property, wife contends the trial court erred in refusing to allocate to the community any interest in the stock. We agree.

A trial court's finding that property is either separate or community in character is binding and conclusive on the appellate court if that finding is supported by sufficient evidence or if based upon conflicting evidence or evidence subject to different inferences. (Beam v. Bank of America (1971) 6 Cal.3d 12, 25.) Furthermore, where the trial court concludes that property contains both separate and community interests, the court has very broad discretion to fashion an apportionment of interests that is equitable under the circumstances of the case. (In re Marriage of Hug (1984) 154 Cal.App.3d 780, 782-783.)

“ ‘․ [E]ach spouse's time, skill, and labor are community assets, and whatever each spouse earns from them during marriage is community property.” ’ (In re Marriage of Harrison (1986) 179 Cal.App.3d 1216, 1226.) Correspondingly, post-separation earnings of a spouse are the separate property of that spouse. (Ibid.; Fam.Code, §§ 770, 771.) Stated another way, earnings attributable to work or services conducted during the marriage are community property. Earnings attributable to work or services conducted before marriage or after separation are the separate property of the working spouse. Of course, the fact that earnings or benefits are actually received before marriage or after separation does not negate a community property interest. If the earnings or benefits ultimately received are due to services rendered in part during the marriage, there is a community property interest and a need to apportion separate and community interests. (Hogoboom & King, California Practice Guide, Family Law, ch. 8.1110, p. 8-261.)

These basic principles underscore the employee benefit cases involving retirement and pension benefits. Retirement and pension benefits are a form of employment compensation and therefore are tantamount to “earnings.” As such they are classifiable in accordance with the employee's marital status at the time the services were rendered, regardless of when the payments vest or are received. This holds true for any type of employee benefit which, regardless of what it is called, is essentially deferred compensation for services rendered.

To support her contention that the Banyan stock was earned by husband during the marriage, wife relies on three cases involving the allocation of community and separate property interests in stock options: In re Marriage of Hug, supra, 154 Cal.App.3d 780, In re Marriage of Harrison, supra, 179 Cal.App.3d 1216 and In re Marriage of Walker (1989) 216 Cal.App.3d 644. These cases recognize that stock options generally may be characterized as alternative forms of employee compensation, similar to other employee benefits, such as health benefits, employer paid life insurance and retirement benefits. Fringe benefits generally are earned by the employee as part of his or her compensation for services, and to the extent they are earned by the time, skill and effort of a spouse during marriage are community property. (In re Marriage of Harrison, supra, 179 Cal.App.3d at p. 1226; In re Marriage of Hug, supra, 154 Cal.App.3d at p. 791.) This result is not affected by the fact that the benefit may not actually be received by the spouse until after separation.

For example, in In re Marriage of Hug, husband was granted stock options during the marriage, portions of which were not exercisable until after separation. Each block of options was exercisable in yearly increments of 30, 25, 25 and 20 percent. The Hug court initially recognized that stock options could be construed, depending on the particular facts of each case, as compensation for either past, present or future services or a combination of these. (In re Marriage of Hug, supra, 154 Cal .App.3d at pp. 784-786.) The trial court had found that the stock options were granted in part to entice husband to leave his prior job and in part as incentive to work hard in the future. Therefore, husband was earning the options from the date of his employment to the date that the options could be exercised and received. Since the husband was earning the options both during the marriage and after separation, the trial court was required to apportion the community and separate interests. The trial court applied a time rule formula to allocate the competing interests, similar to those applied in retirement benefit cases, and the appellate court found this was not an abuse of discretion. Hence, the community property interest was the product of a fraction, the numerator of which was the number of months between the date of employment and the date of separation and the denominator of which was the number of months between the date of employment and the date each block of stock options became exercisable. This fraction or percentage was then multiplied by the total number of shares that could be purchased on the date each block of shares became exercisable.

In re Marriage of Harrison applied similar principles to a slightly different fact situation. The Harrison trial court used a time rule formula to apportion community and separate interests in two different categories of stock options. In the first option plan, husband was granted stock options during the marriage which could be exercised in 25 percent increments over a four year period. Once exercised, the stock was not subject to forfeiture. In the second, third and fourth plans, husband was given the option to immediately purchase stock at a set price; however, this stock could be forfeited to the corporation if the employee were terminated for cause or left voluntarily without corporate consent. The forfeiture provisions lapsed in 20 percent increments starting two years after the stock was issued.

The Harrison court recognized employee stock options are community property to the extent they are earned by the time, skill and effort of a spouse during the marriage. Contractual rights to future benefits received after separation, although nonvested during the marriage, are property subject to allocation between community and separate interests, and a time rule is the method most frequently used in allocating benefits earned in part during the marriage. (179 Cal.App.3d at p. 1226.) Consequently, as a basic premise the trial court's time rule approach in the case was not an abuse of discretion.

On appeal, the wife in Harrison argued the trial court should have chosen the date of husband's start of employment as the starting point in both the numerator and the denominator of the fraction (as opposed to the date the stock options were granted). However, the court held as a factual matter that the stock options were granted only as compensation for future services and hence were not being earned until the date of granting. The Harrison court finally noted it appeared that the trial court had incorrectly chosen the ending date for the denominator in its time rule formula. The trial court's order had designated the denominator as the time period between the date of the granting of the option and the date that the option became fully vested. However, some of the stock options could be exercised immediately; hence, these options vested on the date they were granted, which would mean the denominator would be only one. Therefore, the trial court should have utilized the date the shares of stock purchased pursuant to the option vested, or were no longer subject to forfeiture. With this correction, the court went on to approve of the formula as applied to the facts. (179 Cal.App.3d at p. 1225.) Although not articulated, it appears the Harrison court assumed that the working spouse was earning the stock throughout the entire vesting period.

This issue was clarified in In re Marriage of Walker, supra, 216 Cal.App.3d 644. In Walker, the trial court held it was an abuse of discretion for the trial court not to take into consideration the time period during which certain stock, purchased pursuant to a stock option plan, became vested. During the Walker marriage, husband was granted several company stock options at a set market price. The options were exercisable at various times in the future. Once the stock was purchased (or the option exercised), the stock was still subject to forfeiture (or did not vest) for termination of employment until certain dates in the future.

The Walker court noted that the benefits to be gained from a stock option included not only the right to exercise the options but also, as in Harrison, the right to receive and own the stock without being subject to divestment. Again, it appears the court recognized that the employee spouse was earning the stock or stock options during the entire time the stock was subject to forfeiture, or until the stock became fully vested. Therefore, the trial court's apportionment formula needed to reflect this entire period or the community would have been allotted a disproportionately large share of the benefits from the stock options. (216 Cal.App.3d at pp. 650-651.)

Although instructive, we do not find these stock option cases to be dispositive of the issue before us. In each of these cases, the stock options were granted during the marriage; whereas, in the present case husband purchased his stock with separate property funds prior to the marriage, and the stock was fully issued at the time of purchase. Furthermore, in Harrison and Walker the stock purchased pursuant to the options was subject to complete forfeiture upon the termination of employment. In the present case, however, husband would not have lost his stock had he left Banyan, he merely would have lost the right to sell any nonvested shares for their full fair market value. Furthermore, in the stock option cases, the courts had already determined there was a community property interest in the options since they were granted during the marriage, and the question on appeal was merely whether the trial courts had appropriately applied the time rule formula for allocating the separate and community interests.

Nevertheless, we believe the principles of law underlying these cases are relevant to the issues in the present case. Stock purchased by an employee, pursuant to an offering by the employer, is an alternative form of compensation, just like any other employee benefit, such as health benefits and stock options. Furthermore, such a stock purchase may be compensation for either past, present or future services or a combination thereof, depending on the particular facts of each case. Therefore, stock may be community property, to the extent it is earned by the time, skill or effort of a spouse during marriage. For the reasons stated below, we believe husband was earning a portion of the increased value of the Banyan stock during the marriage, and the trial court's conclusion to the contrary is not supported by substantial evidence.

The trial court held that the stock option cases, and presumably the principles set forth therein, were distinguishable because the granting of a stock option is different than the purchase of shares of stock. The court noted that the owner of a stock option merely has the contractual right to purchase shares of stock at a future date typically for a set price and receives no voting rights as a shareholder of the company. The owner of shares of stock, of course, has purchased the stock and has all the rights incident to ownership of a corporation, including voting and inspection rights. We certainly agree these are the basic differences between an owner of an option and an owner of shares of stock; however, the difference is not relevant to the pertinent issue in this case, which is whether the stock is earned during the marriage. Earnings can take many forms, including stock, stock options, real estate, retirement benefits and cash. The fact that the form of the earnings at issue in this case is stock as opposed to stock options is irrelevant. If the stock, as issued, is essentially deferred or anticipated compensation for services rendered during the marriage, the stock contains a community property interest.

The trial court also held that husband was not earning the stock during the vesting period because there was no requirement that he perform at a specific level of competency in order to cause his stock to vest. That is, his stock would vest simply by his continued employment with minimal work efforts sufficient to keep him from getting fired. It is true that the Management Purchase Agreement does not include any working goals, milestones or performance levels. Assuming that husband had to do only that amount of work at Banyan to avoid his termination in order to trigger the vesting provisions of the agreement, this does not prevent us from concluding that husband was earning the right to keep his stock or realize the fair market value of that stock during the marriage. Clearly, the Management Purchase Agreement contemplated that husband continue his employment, at what level or competency we do not know. Nevertheless, these continued efforts, however minimal, were certainly earning him the right to realize the full increased value of all the stock that he purchased. An employee can earn benefits by doing nothing if that is what is contemplated in the employment agreement. One need not only perform active services to earn compensation. (See Garfein v. Garfein (1971) 16 Cal.App.3d 155, 159.)

Furthermore, the fact that husband was receiving a salary does not mean that the stock was not a part of his overall compensation package. It is not logical to infer that because an employee is receiving a salary, no matter how adequate, he or she could not also be earning other forms of compensation, like stock, stock options, health benefits and retirement benefits.

The trial court further held the stock was not earned during the marriage because all of the stock was issued to husband in consideration for his work in developing the idea of the software and identifying the market for the software. It is certainly true that husband developed the ideas that became the basis for Banyan before the company was incorporated and before the parties were married. However, there is no evidence that the venture capitalists, who made the vesting schedule a requirement of stock ownership, intended to compensate or reward husband for this idea by allowing him to purchase stock. In fact, the evidence suggests otherwise. All three founding fathers, husband, Mahoney and Floryan were allowed to purchase stock for one cent per share. Neither Mahoney nor Floryan could have been compensated for pre-incorporation work and all three were subject to the vesting schedule. The Management Purchase Agreement makes no mention of any purpose in the sale of Banyan stock other than to provide all management and key employees the right to invest in the company. The only consideration stated in the agreement is the cash purchase price.

Husband's expert, Robert McLaughlin, testified that there were many purposes for a vesting schedule, including that the vesting schedule act as a surrogate for a transfer of technology. While this may be a purpose of vesting schedules in some cases generally, there was no testimony or evidence that this was in fact the purpose or one of the purposes of the venture capitalists in the present case. McLaughlin also testified that in his opinion part of the consideration for husband's purchase of stock was the prior work husband had done in developing the idea. While the evidence clearly establishes that significant pre-marital efforts of husband went into developing the file server, there is no competent evidence to support a conclusion that the consideration for husband's purchase of stock was this prior work. First, the Management Purchase Agreement provides for a purchase price of only one cent per share and makes no reference to the purchase being in consideration of prior work by husband. Second, husband never testified he was given the right to purchase stock by Banyan because of his prior work. Indeed both Mahoney and Floryan were allowed to purchase stock for one cent per share and neither of them claimed any prior work in developing the idea.

Even assuming husband was given the opportunity to purchase shares for a very good price because of previous work, that does not mean he was not continuing to earn a portion of the increased value of the shares during the vesting period. There was no competent evidence that husband could have walked away from his employment at the outset with all of his nonvested shares. The only substantial evidence introduced at trial was that as a condition of purchasing stock, husband could not sell his nonvested shares on the open market for fair market value without the consent of Banyan. He only acquired the right to do so by remaining employed with Banyan for four years. By doing so, he was clearly earning valuable contractual rights. To the extent that part of these earnings were attributable to services rendered during the marriage, they must be classified as community property.

Proceedings on Remand

Given our conclusion that the trial court erred in characterizing all Banyan stock as husband's separate property, and that at least a portion of the increased value of the stock was earned by husband during the marriage, we remand the matter to the trial court to allow the court to devise an equitable allocation of community and separate property interests in the stock. We provide the following directions to assist the trial court in its task on remand.

We first note that the trial court is not bound by any particular method of allocation previously utilized by other courts. “[T]he disposition of marital property is within the trial court's discretion, by whatever method or formula will ‘achieve substantial justice between the parties.’ [Citations.] Similarly, “ ‘In making such apportionment between separate and community property our courts have developed no precise criterion or fixed standard, but have endeavored to adopt that yardstick which is most appropriate and equitable in a particular situation․” [Citations.]” ’ (In re Marriage of Hug, supra, 154 Cal.App.3d at p. 791, quoting from Beam v. Bank of America [, supra,] 6 Cal.3d 12.)

We therefore decline to order the trial court on remand to impose a time rule formula for allocating the separate and community interests as requested by wife. We recognize that a time rule, such as those approved in the stock option cases discussed herein, is the method most frequently used in allocating employee benefits that are earned in part during the marriage and may be appropriate where the amount of benefits is related to the number of years or months of employment. (In re Marriage of Harrison, supra, 179 Cal.App.3d at p. 1226.) However, as noted in In re Marriage of Hug, “[a]lthough we approve the use of the time rule fashioned by the trial court under the facts of this case, we stress that no single rule or formula is applicable to every dissolution case involving employee stock options.” (154 Cal.App.3d at p. 792.)

Furthermore, in reversing, we hold only that wife is entitled to some interest in the Banyan stock. Under the time rule formula proposed by wife, the community property interest in the stock would be 99.005 percent, and the separate property interest would be only .995 percent.3 We believe that under the particular circumstances of this case such an apportionment would be inequitable and would not achieve substantial justice between the parties. Nor do we believe wife is entitled to a one half interest in the stock or its value. In this case, husband was responsible, through significant pre-marital efforts, for the creation of an innovative and valuable computer networking device. Husband's idea formed the basis of Banyan, which became a very successful company in large part because of that idea. Although wife spent a good deal of time at trial trying to discredit these accomplishments, the trial court rejected wife's contentions and that decision is more than amply supported by the evidence. Under the unique facts of this case, we believe a trial court would be justified in fashioning an allocation that gave husband a significant separate property interest in the stock.

We also do not believe this case falls within the parameters of the Van Camp or Pereira case. Husband contends the only theory upon which wife could rely to support a claim of a community property interest in the stock is that set forth in the seminal cases of Van Camp and Pereira. These cases offer two methods of allocating community and separate interests in an asset, which arise when the efforts of a spouse during the marriage are responsible for increasing the value of a separate asset. “[T]he necessity of apportionment arises when, during marriage, more than minimal effort is devoted to a separate property business.” (In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 851, fn. omitted.) Where business profits are principally attributed to efforts of the community, the allocation method of Pereira is applied. Under this method, the trial court takes the original separate property investment and allots a reasonable return on that investment for the separate property interest. The remaining value is considered community property. Conversely, the allocation method of Van Camp is applied where the profits accrued are attributed to the inherent character of the separate asset. Under this approach, the trial court would determine the reasonable value of the community's services, allocate that amount to the community and award the balance to separate property.

In its statement of decision, the trial court stated that although no evidence had been produced at trial to support a community property claim under Van Camp or Pereira, the court felt that husband's efforts while working at Banyan had been adequately compensated by his generous salary. Presumably, the trial court would have applied the Van Camp approach in allocating any community property interest in the stock had evidence been produced to support this theory. We believe, however, the Van Camp/Pereira approach would not be an appropriate method of allocation under the particular facts before us.

Van Camp and Pereira are distinguishable because they involve situations in which the separate asset at issue was fully vested before the owner spouse married. Neither of these cases nor their progeny involve the ownership of assets which required continued employment during the marriage to realize the full value of those assets. Furthermore, the focus of Van Camp and Pereira is to ask the question whether the increase in the value is due primarily to the efforts of the working spouse or to the inherent nature of the separate asset. This question is not relevant to the issue we must resolve, which is whether the stock was in fact earned by husband during the marriage. It may be that husband's efforts during the marriage were not the primary reason for the increase in the market value of the stock, as impliedly held by the trial court in this case. However, this implied finding does not negate our belief that husband's efforts in maintaining continued employment were earning him the right to receive the full increase in the fair market value of the stock. Neither Van Camp nor Pereira addresses the question whether the spouses in those cases were continuing to earn the assets during the marriage. Therefore, we believe the Van Camp/Pereira approach is inapposite.

We finally conclude the evidence does not support a conclusion that the sale of 161,500 shares of stock in 1984 consumed all of the community property shares, leaving only separate property shares. The trial court's finding was based on evidence that husband, Mahoney and Floryan devised a method of determining how many shares of the Banyan stock would be available for each founder to purchase. Pursuant to this informal agreement, husband's shares were allocated 75 percent based on pre-incorporation work and 25 percent based on anticipated post-incorporation work. This agreement, however, was never reduced to writing. Indeed, the Management Purchase Agreement, pursuant to which husband purchased his shares of stock makes no mention of the point system or allocation method used by the three founders. There is no evidence the shares purchased were anything other than common par value stock, issued to any management or other key employee of the company. We do not believe the informal agreement may be used to characterize the stock as either community or separate property.


Wife alleged below that husband misappropriated community property by selling back to Banyan 161,500 shares of stock at a selling price of $.01 per share. The trial court rejected this allegation, finding that all of the stock was husband's separate property and that husband was compelled to sell back the stock pursuant to a business decision reached between husband and Banyan. Although we find that the trial court erred in characterizing the stock entirely as husband's separate property, we find absolutely no evidence of a deliberate misappropriation of community assets.

Pursuant to Family Code section 2602 (formerly Civ.Code, § 4800, subd. (b)(2)), in dividing the community assets and liabilities, the trial court has the discretion to make an additional award or offset against existing property from a party's share, in an amount the court determines to have been deliberately misappropriated by the party to the exclusion of the interest of the other party in the community estate. A deliberate misappropriation refers to conduct amounting to “calculated thievery by a spouse, not the mishandling of assets.” (In re Marriage of Schultz (1980) 105 Cal.App.3d 846, 855; see also In re Marriage of Partridge (1990) 226 Cal.App.3d 120, 124-127.)

The undisputed facts concerning the sell back of the stock are that about one year after Banyan was incorporated, husband and Mahoney realized that in order to ensure the future success of Banyan, the company needed to hire an additional person or persons with management skills to run the engineering department. There had been some dissatisfaction with husband's management skills. Therefore, husband sold back 161,500 shares of stock and Mahoney sold back 50,000 shares to create a pool of stock with which to hire new personnel. Husband was amenable to selling back the stock because although his ownership percentage would be smaller, the company in the long run would be much more valuable. There was some controversy over whether husband was forced to sell back the stock at the threat of being fired and whether husband sold back the stock under the belief that Mahoney also would be selling back an equal amount of stock.

Whether husband was forced to sell back the stock or did so on a completely voluntary basis, it stretches logic to conclude that the sale of Banyan stock was the result of deliberate “thievery” for an improper purpose. Underlying the sale of stock was a business judgment that the sale would benefit Banyan in the long run and thereby increase the value of the stock. Therefore, even assuming the stock included a community property interest, the trial court correctly determined there was no misappropriation.

Jewelry and Furniture Division

Wife finally contends that the trial court erred in ordering her to pay husband $10,000 for community jewelry which the court concluded wife had removed from the parties' safe deposit box. She argues the sole evidence concerning the value of this jewelry was husband's trial testimony, which was speculative and not credible.

When asked to give his opinion as to the value of the missing jewelry, husband responded: “Yes․ I think it's around $10,000 [excluding the bangles].” With respect to the missing bangles, husband testified: “I think together-I mean, they would be worth about 2,500 each, maybe 10,000, that's my estimate. I guess I have not even seen it recently to have any idea.”

Generally, the owner of property may give his or her opinion of the value of the property. (In re Marriage of Hargrave (1985) 163 Cal.App.3d 346, 351; Evid.Code, § 813.) Husband obviously was giving his best estimate of the value of the missing jewelry. We do not believe his testimony was so speculative as to be unworthy of consideration. Furthermore, wife did not object to this testimony at trial, and we note that she valued the missing jewelry for purposes of argument at $24,050.

Wife further contends she was not given a fair opportunity to present her claim regarding the equal division of community and separate furniture and furnishings. She argues the trial court issued its tentative decision dividing the property based only on exhibits submitted by husband in his closing brief and before wife submitted her own exhibits concerning the division of the furniture. We find no error or injustice in the procedures utilized by the trial court.

At trial, the parties submitted an appraisal, completed by Neale & Sons, of all of the furniture in the possession of each party at the time of trial. Husband testified concerning his identification of furniture which consisted of community property and which was his separate property, purchased before the marriage. Wife similarly testified and provided evidence to the trial court on this subject by way of offer of proof. Due to the time constraints of trial, the trial court invited both parties to submit further exhibits or argument with their closing briefs concerning the appropriate division of furniture.

While husband's proposed statement of decision and judgment includes an exhibit summarizing husband's testimony concerning furniture, wife's closing brief does not. The copy of her closing brief included in the record on appeal is neither dated nor file-stamped. Wife did submit a summarizing exhibit concerning furniture with her objections to the proposed statement of decision and judgment. At the hearing on the motion concerning the objections; however, the trial court noted that it intended to fully consider both parties' exhibits before making its final statement of decision and judgment concerning furniture division.

Under these facts, we cannot accept wife's contention that she was not given a fair opportunity to convince the court of her position concerning the division of furniture.

Attorneys Fees

Wife finally contends the trial court erred in refusing to order husband to pay for the remainder of her outstanding attorneys fees at the close of trial. We disagree.

The trial court had previously ordered husband to advance funds sufficient to pay court costs and attorney's fees for wife during the pendency of litigation. However, due to wife's substantial salary and the fact that the court awarded her 800,000 shares of Reach Corporation stock, plus other assets, the court found that wife was able to pay for her remaining fees and costs. We perceive no abuse of discretion. (In re Marriage of Czapar (1991) 232 Cal .App.3d 1308; In re Marriage of Aninger (1990) 220 Cal.App.3d 230; Fam.Code, § 2032, subd. (a).)


The trial court's order awarding all Banyan stock as husband's separate property is reversed. We remand the matter to the trial court for further proceedings consistent with the views expressed herein. The trial court's order dividing jewelry and furniture is affirmed as is the order requiring wife to pay her own attorneys fee.

Each party shall bear his or her own costs on appeal.


1.  The stock purchased by husband was referred to as founders stock. However, there is no technical definition of founders stock. In this case, the stock purchased by husband, Mahoney and Floryan was no different than any other par value common stock purchased by other management and key employees.

2.  Testimony at trial established husband's starting annual salary at Banyan was $52,000. He had been making $42,000 to $44,000 when he left Data General. Mahoney testified husband's salary at Banyan was at the high end range for an engineer of husband's age and experience.

3.  As set forth in wife's opening brief, the time rule formula for allocating interests would be as follows: “The numerator should be the number of weeks between the date of marriage and the date the stocks vested, and the denominator should be the number of weeks between the date of purchase and the date the stocks vested. The balance is community property. Inserting the appropriate numbers, the separate interest is 207/208 or .995% of the total. Accordingly, the community interest here is 100% minus .995%, or 99.005%. The value of this interest for stocks already sold is determined by calculating the difference between the purchase price ($.01 per share) and the price at which the stock was sold by Husband. Thus, of the 70,000 shares sold at $1.3 million, ․ the community is entitled to $1,299,300 ($1,300,000-$700) x 99.005%, or $1,286,371.90, of which Wife's share is $643,185.95. The same formula would be applied to other shares sold since the judgment was entered. All remaining shares should be divided, .995% to Husband and 99.005% to the community, after payment by the community of $.01 per share to Husband.”



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