Marriage of Folb

In June 1963, the marital community of Stanley Folb (defendant) and Frances Folb (plaintiff) began. At that time, Stanley had a separate estate consisting primarily of commercial real estate worth about $1.125 million and cash or cash equivalents of about $123,000. In 1971, the Folbs separated, and Frances sought to establish the amount of gains on Stanley’s separate property that belonged to the community. The real estate holdings had reached a value of about $4.265 million. Frances’s evidence at trial showed that Stanley was a skillful developer who had been active in every phase of development of the commercial properties, either personally or through selecting and supervising personnel who were actively involved. Stanley had undertaken the role of a general contractor. According to Stanley’s evidence, the annual rate of return from comparable commercial real estate holdings ranged from 14 to 18 percent. Under the Pereira method of apportionment, in which a court fixes a specific return for separate capital and lets the community gain fluctuate, the trial court applied a 12 percent rate of return to calculate Stanley’s separate gains. The court acknowledged that it was not using the higher rate of return advocated by Stanley because, as the court explained, Stanley had devoted labor during marriage to maintaining and developing the separate estate. The court further determined that Stanley was entitled to a 7 percent rate of return on his cash holdings. Certain evidence showed that Stanley had used the cash to increase his investment in commercial real estate, but other evidence showed that he had withdrawn an unknown amount of cash over the years and had no records of expenditures. Stanley appealed, claiming that he had been a mere passive investor in the commercial properties and that the trial court should have used a higher rate of return to apportion gains to his separate estate.