Tag: Equitable Distribution

Property Division and the Family Castle

Posted by Ron Kauffman on

For many American families, their home is their castle. When divorce is on the horizon, your castle may fall under attack. Florida’s property division statute requires an equitable distribution of all marital property, but it is not a how-to guide. Money magazine has an article looking at some of your options.

Property Division Castle2

The Coronavirus Crash

Before the silent enemy Covid-19 hit us, the median value of a home in the U.S. was $247,084, and the average amount of mortgage debt a person topped $202,000.

With many experts predicting the coronavirus siege will lead to a surge in divorce, deciding how to deal with your marital home – and its accompanying debt – can be a dangerous financial burden in every case. Below are some strategies to defend your castle.

Selling the Castle

For many couples simply putting a shared home up for sale may seem like the simplest solution, but remember, that step won’t automatically erase all mortgage headaches or end the need to co-operate with your former spouse.

You will still need to agree on a realtor and asking price as well as determine how the continuing mortgage payments will be made. Will you be splitting the expense 50/50? Will the spouse who continues living there make the full payment?

If your home sells for more than the outstanding balance on the mortgage, how will the remaining proceeds be divided between you both after settling the joint debt? Worse, if you end up underwater on the mortgage, you’ll have to decide if you can even afford to sell it and how you’ll pay off the remaining debt if you do.

There are also the taxes. You can each exclude the first $250,000  in capital gains — the amount your home has appreciated in value since you bought it — from your taxable income, if the home was your primary residence and you owned it for more than two years.

If you opt to file a joint tax return, you can exclude up to $500,000. Earnings above that exclusion or on the sale of, say, a vacation property, could stick you with a tax bill.

Keeping the Home

Divorce upends life, and it makes sense that a majority of the time at least one spouse isn’t ready to leave the marital home and add the stress of moving to their to-do list.

The idea of remaining in a familiar, comfortable home can seem even more compelling when there are children who might have to change schools or leave behind friends.

But many financial advisors and divorce attorneys caution against keeping your old home after a divorce, calling it one of the biggest mistakes you can make during the process.

If you want to remain living in the home you once shared with your ex-spouse, you need to carefully review your budget and weigh whether you can individually afford it.

Refinancing the Mortgage

If you have $50,000 in equity in your current home and you’ve agreed to a 50-50 split of its value, you’ll need to come up with $25,000 to buy out your former spouse. In return, your ex-spouse should remove their name from the property title, typically using a quitclaim deed.

If you don’t have the cash, you might need to give up other assets in the divorce negotiations equal to the home’s equity, such as your investment account, 401(k) or IRA.

However, qualifying as a single person can be challenging as lenders will examine your individual earnings, credit history, and savings to see if they believe you’re capable of repaying the loan.

Staying Co-owners of the Manor

If you are unable to refinance or payoff the mortgage, you may be able to keep the status quo. This is not recommended, as it requires a high degree of trust in your former spouse.

Since both your names will remain on the home and on the mortgage, you’ll both be liable for making payments. Should your ex-spouse stop contributing their share, you could face more debt, foreclosure, bankruptcy or poor credit.

Florida Property Division

I’ve written about houses and property divisions before. In Florida, every divorce proceeding the court has to set apart nonmarital property, and distribute the marital property.

Florida judges always begin with the premise that the property distribution should be equal, unless there is a reason for an unequal distribution based on several factors.

One of the factors the court has to consider is the desirability of keeping the home for the kids or a spouse, if it’s equitable to do so, if it’s in the best interest of the child, and financially feasible.

However, whether keeping the home for yourself or the kids is financially feasible requires you to have an honest look at what you can and can’t afford. Some strategies to keep the home include:

Raiding Savings

While not the best solution, pulling from savings can help you keep hold of the home. By obtaining a court ordered qualified domestic relations order or QDRO, you can gain access to a portion of your ex-spouse’s employee retirement plan assets.

Such funds may not be subject to the 10% early withdrawal penalty for people under age 59.5, meaning you’ll save more on taxes by using this money to secure your home than you would by tapping other accounts you may have.

Alternatively, if you have Roth IRA savings, you could pull an amount equal to what you’ve contributed tax and penalty free, again making it a smarter way to meet your mortgage payment needs.

Raising Rents

If you’re really determined to keep the home, but cannot pull from savings or refinance, it might be worth brainstorming ways you can earn income from it to help cover the mortgage and upkeep costs.

Renting out the whole home while you’re on vacation – or even just a bedroom or two when in town – could make you hundreds a night. Airbnb hosts, for instance, can make over $900 a month according to research.

If you can’t refinance the mortgage in your own name, keeping the home isn’t a wise decision. It is better to restructure your life in a way that makes sense in the long run, rather than pillage your other financial accounts.

The Money article is here.

 

The Ultrawealthy Divorce Differently and there’s more Good News on Coronavirus

Posted by Ron Kauffman on

Locked out of your $88 million Manhattan condo? The rich are different when it comes to equitable distribution. As the Wall Street Journal reports, how ultrawealthy couples divorce is becoming much harder as financial portfolios become more complex. There’s also good news on the coronavirus.

Ultrawealthy Divorce

Enter the Badlands

Many ultrawealthy people in a divorce are having trouble finding assets, like the front door keys to their $22 million Hawaii home. A big reason for the complexity is the widespread use of trusts. Trusts can play a big role in divorce depending on your circumstances.

Setting up a trust may allow you to safely transfer ownership of your non-marital property into a separate trust. If you divorce, a trust like this may make the entire property, and its appreciation, out of equitable distribution.

South Dakota is becoming a hotspot for trusts, holding almost a trillion dollars in trust assets because state laws have made South Dakota more favorable for trusts. Generally, trust assets are managed by a Trustee for the benefit of beneficiaries.

A trust can be drafted with a variety of different provisions in order to accomplish a variety of different goals. In every trust, the Trustee must account to the beneficiaries about its actions, and it must be fair and prudent in dealing with the trust and beneficiaries.

So, what happens if one spouse is named as the beneficiary of a trust, and that spouse benefits from the trust during the marriage? The answer to questions like this is not always straightforward in every state.

Florida Equitable Distribution

I have written about Florida equitable distribution during divorce before. In Florida, the legislature has created a statutory scheme to guide family courts in the equitable distribution of assets upon dissolution of a marriage.

Under Florida’s equitable distribution statute, marital assets include assets acquired during the marriage, individually by either spouse or jointly by them. Nonmarital assets include assets acquired by either party prior to the marriage, and assets acquired in exchange for such assets.

The equitable distribution statute also creates a rebuttable presumption that assets acquired by either spouse during the marriage are presumed to be marital assets: “All assets acquired … by either spouse subsequent to the date of the marriage and not specifically established as nonmarital assets … are presumed to be marital assets …. Such presumption is overcome by a showing that the assets … are nonmarital assets ….”

That’s where trusts come in. Although your home became a marital asset when you purchased the home and jointly titled it in you and your spouse’s names, the home can cease in character to be a marital asset upon its transfer into a trust.

At that point, the home can become part of the assets of the Trust, an entity distinct from either a Husband and Wife. Transferring a home into a Trust has the possibility to place the home beyond a family court’s reach for purposes of equitable distribution in a divorce.

In South Dakota We Trust?

As the Wall Street Journal reports, Texas financier Wilbur Bosarge and his wife of 22 years, Marie Bosarge, conducted business affairs through various trusts. For instance, they used a trust to buy a $45 million dollar flat in London’s “Billionaire Square.”

After Marie flew back and forth between Texas and London decorating and hand selecting furnishings for the new London flat, she never got to see it finished.

By the time it was complete, her husband left her for a 20-something Russian mistress who moved into the flat instead.

Owning the flat through a complex network of trusts and limited liability companies, the husband is using the ownership structure to eliminate her stake in the property. The wife may be stuck, because a family court may not be able to decide property rights of a nonparty to a divorce, like a trust or limited liability company.

Good News on Coronavirus

Let’s face it, the media has a tendency to give extra coverage to bad news, because readers find negative stories more eye-catching.

But, from lower toxic fumes to more time spent with family, there is always good news to report during the high point of the novel coronavirus pandemic.

  • First, there are tentative signs of infection curves flattening. Concentrate on statistics about the tendency of curve flattening – not the rising death rates – as an early harbinger of the turning point.
  • Second, a major model has lowered its prediction for the death toll in the United States. The model predicts that some states will start to see fewer deaths from COVID-19 each day and some states may have even passed their peak.
  • Third, pharmaceutical firm Abbott Labs said it was launching a test for the SARS-COV-2 virus that could take as little as five minutes and “be run on a portable machine the size of a toaster”. German technology company Bosch says it has done the same. Johnson & Johnson said it had identified a vaccine candidate and the US government was investing $1 billion in its development.
  • Fourth, other groups are investigating ways to start human trials for vaccine candidates early, and are using brave and willing volunteers, who haven’t been at all hard to find.

The Wall Street Journal article is here.

 

Big British Property Division Case

Posted by Ron Kauffman on

A British woman who “sacrificed” her career as a lawyer so she could be a stay-home mum and raise her children has won an unequal property division on top of an equal share of the family’s wealth after her divorce. This case proves that the interruption of your career can impact your divorce.

Merry in England

A woman who “sacrificed” her career as a solicitor so she could look after her children has won compensation on top of an equal share of the family’s wealth after her divorce.

The ruling could have implications for other divorce cases in which one partner has stepped back from their career for the good of the family, a lawyer said. The Cambridge graduate was embroiled in a fight over cash with her millionaire husband, who is also a solicitor, after the breakdown of their marriage.

A judge has decided the pair, who were married for about a decade and have two children, should split assets of nearly £10 million equally but that the woman should get another £400,000 in compensation for curtailing her legal career.

Mr. Justice Moor said there had been “relationship-generated disadvantage” as the husband was still able to enjoy a “stellar” career.

[The woman] viewed herself as the parent who would take primary responsibility for the children. The husband’s career took precedence. I accept that it is unusual to find significant relationship-generated disadvantage that may lead to a claim for compensation but I am clear that this is one such case. I have come to the conclusion that an appropriate sum to award for relationship-generated disadvantage, over and above her half share of the assets, is the sum of £400,000.

As a talented lawyer, our client sacrificed a potentially lucrative career for her family and to care for the children. Although Mr. Justice Moor has made clear this decision should not open the floodgates to a raft of relationship-generated disadvantage claims, the judgment affirms that in truly exceptional circumstances the principle of compensation still exists in family law, and rightly so.

Florida Property Division and Careers

I have written about property division before. Florida’s equitable distribution statute begins with the premise that the distribution should be equal, but the trial court may make an unequal distribution when proper justification is demonstrated.

The equitable distribution statute lists several factors for a trial court to consider in making this determination, and the court must support its equitable distribution scheme with specific factual findings.

As in the recent England case, a Florida trial court follows several factors to support an unequal distribution, including: what were the contributions to the marriage by each spouse, the economic circumstances of the parties, the duration of the marriage, and the interruption of personal careers.

Generally, the fact that one spouse is the primary bread winner won’t support an unequal distribution in Florida.

Stiff Upper Lip

In another British case, a businesswoman who left behind her career in order to become a “stay at home mum” while her husband continued with his high-flying career has been awarded virtually all of the family fortune by a divorce judge.

Jane Morris, 52, had been criticized by her former husband for not bringing more money in after they split, having quit her career as a recruitment consultant to keep house for him and their three children for 20 years.

However, it emerged that she was awarded half a million pounds while husband, Peter Morris, the managing director of a software company with a seven-figure turnover, was left with just £66,000.

Details of the case came out as he launched a challenge in the court of appeal against the financial outcome of the divorce and a six-week prison sentence which is hanging over his head after it was imposed on a suspended basis for non-payment of alimony and support.

The court heard that the 51-year-old businessman “took credit” for the “high standard of living” the couple enjoyed in their £1.2m cottage in the Chiltern Hills.

However, the couple’s “extravagant” spending, both during their marriage and after their “bitterly contested” break-up in 2013, brought them “to the brink of financial disaster”, reducing multi-million-pound family assets to just £560,000.

Awarding 90% of the family assets to her, the judge had said that she “needs adequate maintenance” because sacrificing her career had left her with a “low earning capacity… in her middle fifties with rusty skills.”

Morris had hit out at his wife’s own expenditure and criticized her for not earning more, having re-entered the labor market since they separated. But she was ruled to be “a sensible woman” who was “probably in need of emotional and psychological comfort” during her own spending sprees.

The Guardian article is here.

 

A Strange New World of Equitable Distribution

Posted by Ron Kauffman on

Divorce typically involves dividing up the marital property. Every case can be different in what there is for equitable distribution. Houses and retirement accounts are pretty common, and collectible cards and dolls are rarer, but actor William Shatner’s divorce involved something truly strange: horse semen.

Equitable Distrib Horse Semen

To Seek Out New Life

Actor, William Shatner, famous for his role as captain of the Star Trek Enterprise, was recently awarded horse breeding equipment in his divorce settlement with ex-wife Elizabeth Shatner.

The actor’s divorce was settled in Los Angeles Superior Court Tuesday, according to court records. They separated from one another in February 2019.

But the most interesting part of the former “Star Trek” actor’s divorce is what he wanted as equitable distribution. Shatner, who is a horse breeder, will get “all horse semen” as a part of the settlement.

Wine, pets, antique rifles, baseball cards, sports memorabilia are some of the more unique “assets” many of my cases involved. Like any important asset, horses can be a challenging asset to divide.

Valuation of horses can requires knowing their training, winnings, and earnings. Horse ownership also requires knowing the horse’s board, routine maintenance, insurance costs, breeding rights, showing rights, and cash earnings from breed organizations.

Interestingly, the horse’s frozen semen is often extremely valuable and must be spelled out in any divorce order or agreement along with rights to any potential offspring.

That’s because a horse’s DNA and cloning are big topics in the horse industry. The issue of equitable distribution is also complicated by the fact that it is not just the rights to a horse but also the rights to the horse’s DNA, and the rights to any cloning of the horse.

Florida Equitable Distribution

Does a family court have to distribute horse semen? I have written about property division, called “equitable distribution” in Florida, before. Florida is an equitable distribution state when it comes to dividing business assets in divorce.

That means that in a proceeding for dissolution of marriage, in addition to all other remedies available to a court to do equity between the parties, a court must set apart to each spouse that spouse’s non-marital assets and liabilities.

When distributing the marital assets between spouses, a family court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal distribution based on all relevant factors.

Boldly Going Where Few Men Have Gone Before

As additional equitable distribution, the Shatners divided their four horses between them. The captain will get “Renaissance Man’s Medici” and “Powder River Shirley”, while his ex-wife will get “Belle Reve’s So Photogenic” and “Pebbles”.

This is not the first horse semen rodeo for Shatner. He was sued in 2003 by ex-wife Marcy Lafferty Shatner, who claimed he violated the equitable distribution settlement in their 1995 divorce that allowed her one breeding privilege per calendar year with their American saddlebred stallions.

William and Elizabeth Shatner also divided their homes, including a home in Versailles, Kentucky that Elizabeth will get. In 2018, Shatner tweeted that he only visits his Kentucky home “once or twice a year.” But perhaps now it’s his old Kentucky home.

William and Elizabeth Shatner raised and trained American saddlebreds at their Versailles farm. He had homes in Kentucky, including Lexington, since the mid-1980s.

The couple will not receive any financial support from one another as a part of the settlement. They were married for 18 years.

The Lexington Herald Leader article is here.

 

A Slice of Equitable Distribution and Alimony

Posted by Ron Kauffman on

The wife of Papa John’s founder John Schnatter filed for divorce, claiming her marriage with the unemployed pizza executive is “irretrievably broken,” according to court papers filed in Kentucky. If there is no prenuptial agreement, how big a slice of equitable distribution of the stock and any alimony is Annette entitled to?

Slice of Equitable Distribution

When the Moon Hits Your Eye

Papa John’s is an American pizza restaurant franchise. It runs the fourth largest pizza delivery restaurant chain in the United States, with headquarters in Jeffersontown, Kentucky, a suburb of Louisville.

Papa John’s was founded in 1984 when “Papa” John Schnatter knocked out a broom closet in the back of his father’s tavern, Mick’s Lounge, in Jeffersonville, Indiana. He then sold his 1971 Camaro Z28 to purchase US$1,600 worth of used pizza equipment and began selling pizzas to the tavern’s customers out of the converted closet.

John’s pizzas became so popular he moved into the adjoining space. The company went public in 1993 and a year later it had 500 stores. By 1997 it had 1,500 stores. And in 2009, John got his Camaro Z28 back after offering a $250,000 reward.

Schnatter and Annette Cox, 59, had been married since April 11, 1987, and separated on April 1 of this year, the wife’s attorney Melanie Straw-Boone writer in papers filed in Oldham Circuit Court. Cox called Schnatter a 57-year-old Louisville resident who “is not employed,” according to the boilerplate, three-page petition.

“The marriage between petitioner and respondent is irretrievably broken”.

The couple have two children and share unspecified real estate holdings, the filing said. Schnatter stepped down as CEO in late 2017 after reports surfaced that he uttered a racial slur during a conference call.

Alimony, Equitable Distribution, and the Length of Marriage

In Florida, the duration of marriage is an important topping in divorce cases. I’ve written about the types of alimony awards available in Florida before. For instance, Florida Statutes dealing with alimony specifically limit the type of alimony awards based on the duration of the marriage.

So, for determining alimony, there is a rebuttable presumption that a short-term marriage is a marriage less than 7-years, a moderate-term marriage is greater than 7-years but less than 17-years, and long-term marriage is 17-years or greater.

Florida defines the duration of marriage as the period of time from the date of marriage until the date of filing of an action for dissolution of marriage.

The duration of marriage can also be a large slice of the property division. When a court distributes the marital assets and liabilities between the parties, the court begins with the premise of an equal split.

However, there are times and cases which justify an unequal distribution based on several relevant factors. One of the factors a court can consider is the duration of marriage, in addition to other factors.

Dividing assets between spouses – especially large companies such as Papa John’s – is not as simple as taking a pizza cutter to a hot pie; even with agreements. Very often assets have appreciated over the course of several years. The longer the marriage is, the more a business interest can appreciate. When property appreciates, you need to distinguish between passive and active appreciation. A passive asset could be an investment account which is never traded.

A business, on the other hand, is an active investment, and the percentage a spouse is entitled to may depend on different things. Even with the most sophisticated couples, such as the Schnatter/Cox family, unless you clairvoyant, issues will arise that no one considered in earlier agreements, and are prime for negotiation.

Pizza Ready?

Separate from the divorce case, Schnatter filed a lawsuit Thursday against an advertising firm which was at the center of the racial slur incident.

Schnatter allegedly uttered the slur during a call with advertising firm Laundry Service, which the pizza executive accused of recording him without his consent. The lawsuit claims that Laundry Service leaked excerpts of the conference call, which broke a nondisclosure agreement.

Two weeks ago, Schnatter accused his former company of making substandard pizza. He said his former company has failed in keeping up with its long-time slogan: “Better Ingredients, Better Pizza.”

“I’ve had over 40 pizzas in the last 30 days, and it’s not the same pizza,” Schnatter told WDRB, a Fox affiliate in Louisville, Kentucky. “It’s not the same product. It just doesn’t taste as good.

The NBC News article is here.

 

Enforcing a Gusher of an Equitable Distribution Award

Posted by Ron Kauffman on

After his divorce, Todd Kozel, a former oil executive, was ordered by a family court to transfer 23 million shares from his oil company to his wife as equitable distribution. When he didn’t, a $38 million judgment was entered against him. Why was that enforcement order overturned?

Equitable Distribution Oil

Striking Oil

Todd and Ashley married in 1992, and she filed for divorce in 2010. Todd is the chief executive officer of Gulf Keystone Petroleum, Ltd., an oil and gas exploration company.

When the parties divorced, much of their shared wealth consisted of Gulf Keystone stock, which is publicly traded in London. The parties settled after he agreed to transfer Gulf Keystone stock to Ashley as equitable distribution.

Under their Settlement Agreement, the husband was obligated to transfer twenty-three million shares of Gulf Keystone stock to his wife as equitable distribution on or before January 27, 2012. Upon delivery, the former wife would then be free to sell her stock to anyone at any time.

But Todd didn’t deliver his twenty-three-million shares by January 27, 2012. Instead, he transferred the stock to her in four batches at later dates: (1) 2,034,447 shares on January 30, 2012; (2) 3,798,886 shares on February 3, 2012; (3) 5,666,667 shares on February 21, 2012; and (4) 11,600,000 shares on March 1, 2012.

Invoking the trial court’s continuing jurisdiction to enforce the agreement, Ashley filed papers with the family court. Although her filings were styled as petitions to enforce the agreement, they alleged what amounted to claims for money damages for alleged breaches of their agreement.

After granting partial summary judgment on liability and holding a trial on damages, the family court found Todd in breach and awarded her: $34,611,702 as damages for his failure to deliver the stock on time and another $3,850,500 as damages for the breach to provide tax information.

Florida Equitable Distribution

Why was Ashley awarded so much of Todd’s Gulf Keystone stock? I have written about equitable distribution before. Florida is an equitable distribution state when it comes to dividing business assets in divorce.

In a proceeding for dissolution of marriage, in addition to all other remedies available to a court to do equity between the parties, a court must set apart to each spouse that spouse’s non-marital assets and liabilities.

When distributing the marital assets between spouses, a family court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal distribution based on all relevant factors.

When the Oil Runs Out

While Todd was in default for his failure to timely deliver the Gulf Keystone stock, he made all of the additional equitable distribution payments required. On November 28, 2012 — eight months after the final transfer of stock — Ashley argued that Todd’s breach of the agreement caused her to suffer substantial damages because it denied her an opportunity to sell the stock at a time when market conditions were favorable.

But Todd argued that a family court lacks jurisdiction to consider Ashley’s claim because what she was asking for amounted to a claim for general damages for breach of contract.

So, Ashley amended her petition, styling it as one to “enforce” the agreement. She alleged that the court had jurisdiction to enforce the agreement through an award of damages for losses that she allegedly incurred as a result of the failure to deliver the stock timely.

The family judge awarded her $34,611,702 and another for the tax basis dispute $3,850,500, to be placed in escrow (presumably pending the outcome of a refund request to the IRS).

The question in a case like this is whether and to what extent a family court’s continuing jurisdiction to enforce a final judgment extends to claims for money damages for breaches of a settlement agreement.

When a court orders compliance with the terms of a settlement agreement – when it requires a party to perform an obligation in the agreement — it is engaged in proper post-judgment enforcement over which it has continuing jurisdiction. But when a court awards damages as a substitute for a party’s performance, it is not engaging in legitimate post-judgment enforcement but a separate claim for breach.

The former wife sought and the family court awarded general, benefit-of-the-bargain damages for the breach of the agreement that was not specified in the agreement. In reversing the judgement, the appellate court ruled that “couching these remedies as “enforcement” of the [agreement] does not change what their substance is: general damages for breach.”

The opinion is here.

 

Divorce and Business Property Division

Posted by Ron Kauffman on

When one of Zach Hendrix’s three business partners said he was getting divorced, sympathy turned into shock as everyone realized that a soon-to-be ex-wife could become a co-owner. Understanding the law around business and property division in a divorce is the first step to protecting yourself.

business property divisions

Open for Business

When a small business owner divorces, the company can become part of a property fight; the battle can end with owners losing all or part of their businesses. Or, they or the company may be forced to take on debt to prevent an ex from sharing ownership.

Even when ownership isn’t at stake, the rancor and uncertainty around a divorce can take a toll on a company — owners may be distracted and unable to focus on what the business needs.

Hendrix and two of his co-owners had to borrow a combined $250,000 to buy out their partner in 2017 after he announced his divorce plans. A startup, and not in a position to get that much credit, the three had to personally guarantee the loans. They were able to repay the debt in a year and a half out of their profits.

The divorce was a learning experience for the partners. When they started, they hadn’t written what’s known as a buy-sell agreement that creates a process and sets a price for buying out a partner.

Florida Business Property Division

I have written about property division recently. Florida is an equitable distribution state when it comes to dividing businesses in divorce.

In a proceeding for dissolution of marriage, in addition to all other remedies available to a court to do equity between the parties, a court must set apart to each spouse that spouse’s non-marital assets and liabilities.

There are several factors to know whether a business interest is marital. First, you will need to look at the date of marriage and the date the business interest was acquired.

Additionally, you should look to the source of funds used to start the business, and also if there were money and labor contributions to the business given by either spouse during the marriage. In distributing the marital assets and liabilities between the parties, the court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal distribution.

Whenever an agreement cannot be made between the spouses, the court’s distribution of marital assets or marital liabilities must be supported by factual findings and be based on competent evidence.

Once you have determined whether an interest in a business is marital, how do you actually determine what that interest is worth?

There are three approaches to value a business interest: (1) the asset approach; (2) the income approach; and (3) the market approach.  Each approach has inherent strengths and weaknesses.

Any valuation expert should consider all three approaches; however, it is often the case that all three approaches cannot be applied.

Back in business

The emotional fallout from a divorce can affect co-owners and employees. In his settlement with his wife, Jeffrey Deckman agreed to pay her $100,000 over four years; that amount was half what his telecommunications business was valued at.

Deckman borrowed money to make the payments, but having that debt hanging over him created stress that spilled over to his company.

“I started getting edgy, short-tempered, pushing hard for (sales) numbers that I never pushed so hard for before.”

He began fighting with his two business partners, and the discord affected everyone who worked there. It took six months for Deckman to realize what he was doing. “It showed me on a certain level that I hadn’t accepted responsibility for the deal I made,” he says.

But by the time Deckman understood that “I was making people pay,” he had damaged his relationship with his partners and staffers. In 2005, two years after the divorce, he realized that he needed to withdraw from working in the company, and in 2008 he sold his stake. Deckman, who now does consulting for small and mid-sized companies, believes despite losing his share of the business that he did the right thing in his divorce settlement.

He says of his ex-wife: “Today, years later, we are great friends and our children benefit greatly because of it.”

The Detroit News story is here.

 

The Art of Divorce

Posted by Ron Kauffman on

Dividing assets in a divorce is not only a requirement, it can be a difficult aspect of a divorce. If so, valuing an art collection is singularly one of the most disputed parts of a divorce. Not only is valuation a problem, but people are emotionally attached to their artwork as one billionaire couple in New York has found out.

art of divorce

Billionaire’s Row

The ex-husband is Harry Macklowe, a real estate developer. The ex-wife is Linda Macklowe, an honorary trustee of the Metropolitan Museum of Art, who is passionate about collecting modern art.

Together they have accumulated a $72 million apartment, so large it runs the full length of one side of the Plaza Hotel, with windows overlooking Central Park. A second Manhattan apartment is high up in one of the tallest buildings in the Western Hemisphere, along the so-called Billionaires’ Row.

Their $19 million house in the Hamptons on Long Island has neighbors with boldface names, including Martha Stewart and Steven Spielberg. The $23.5 million yacht is a 150-foot-long prizewinner.

And then there is the art collection, an enormous trove of masterpieces that the judge presiding over the divorce described as “extraordinary” and “internationally renowned” and that has become the latest chapter in the exes’ rancorous unraveling. Among the more than 150 pieces are multiple works by Pablo Picasso, Jeff Koons, Willem de Kooning and Mark Rothko.

The exes’ lawyers have fought about what most of them were worth — one rare moment of agreement came when two art experts hired separately by the exes both valued an Andy Warhol creation filled with images of Marilyn Monroe at $50 million — and who should get them.

Florida Property Division

I have written about property division before. Florida is an equitable distribution state when it comes to dividing art in divorce. In a proceeding for dissolution of marriage, in addition to all other remedies available to a court to do equity between the parties, a court must set apart to each spouse that spouse’s nonmarital assets and liabilities.

In distributing the marital assets and liabilities between the parties, the court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal distribution.

Whenever an agreement cannot be made between the spouses, the court’s distribution of marital assets or marital liabilities must be supported by factual findings and be based on competent evidence. Whether the court distributes artwork equally or not, the court must make specific written findings of fact as to each marital asset and the individual valuation of significant assets, and designation of which spouse shall be entitled to each asset.

Because an effective valuation is important, most attorneys will hire an expert appraiser to provide the appropriate report and testimony to the court.

It’s Up to You New York, New York

The Macklowes’ divorce comes with the twist of an impressive art collection that has been valued at as much as nearly $1 billion. In 2016, Mr. Macklowe told Ms. Macklowe that the marriage was over. By the end of last year, the Macklowes’ divorce had been granted. Mr. Macklowe then put giant images of himself and Patricia Landeau, his new wife, on the side of a luxury condominium building in Manhattan that he built.

But the wrangling continued over how to divide an art collection that David N. Redden, a former vice chairman of Sotheby’s, called “fairly staggering” and “one of the great prizes.” In the Macklowes’ divorce, the former spouses had to unload the art “to sustain their lifestyle. They don’t have the cash.” About 60 to 75 percent of their assets were tied up in the art collection.

As for the value of the art, during the lower-court proceeding, each side hired an expert to appraise the art. Mr. Macklowe’s expert estimated the value at $788 million; Ms. Macklowe’s expert said $625 million.

“If this had been a case with one or two fewer zeros, it would be an ordinary kind of dispute. Because of the prominence of the parties and the amount of money involved, this is a case that attracts natural attention.”

Ms. Macklowe did not want to let anything go. “She stated that she wished to enjoy the collection and sell individual pieces only as necessary to support her standard of living.” That would have posed tax problems for Mr. Macklowe. The wife wanted all the major pieces of art to go to her, and she would decide what to sell and when to sell it. The husband would have to pay taxes on what would be sold, because the value that would be attributed to the works would be the after-tax value. She would keep the art, the art would get sold and he would pay the taxes.

The New York Times article is here.

 

Divorce and the Engagement Ring

Posted by Ron Kauffman on

Kim Kardashian reportedly refused to give back her engagement ring to estranged husband, former basketball player, Kris Humphries. Is a spouse obligated to return an engagement ring after a divorce has been filed – whether the ring is worth $2mm or not?

engagement ring

Keeping Up with the Kardashians

A source close to the Kardashian situation reports that her husband Kris contends that the marriage was a total sham and that Kim only wed him for publicity so therefore she has no right to keep such an expensive gift.

This is the latest battle in the drawn-out Kardashian-Humphries divorce proceedings. The reality star filed for divorce from Humphries in October 2011 after just 72-days of marriage. He responded a month later by filing for an annulment on the basis of fraud and a legal separation.

Florida Engagement Rings

I’ve written about some of the history and law about engagement rings before. Until the 1930s, a woman jilted by her fiancé could sue for financial compensation for “damage” to her reputation under what was known as the “Breach of Promise to Marry” action.

As courts began to abolish such actions, diamond ring sales rose in response to a need for a symbol of financial commitment from the groom. Florida abolished the appropriately termed “heart balm statutes”. Heart balm statutes were laws allowing couples to sue each other to recover money for the alienation of affections and breaches of contract to marry.

As one court poetically noted:

[A] gift given by a man to a woman on condition that she embark on the sea of matrimony with him is no different from a gift based on the condition that the donee sail on any other sea. If, after receiving the provisional gift, the donee refuses to leave the harbor – if the anchor of contractual performance sticks in the sands of irresolution and procrastination – the gift must be restored to the donor. A fortiori would this be true when the donee not only refuses to sail with the donor, but, on the contrary, walks up the gangplank of another ship arm in arm with the donor’s rival?

After an engagement ring is given, and if the couple doesn’t marry, in New York the law deems a broken engagement as no one’s fault. Accordingly, the ring should be given back to the giver, with few exceptions. Most states have adopted that approach.

This is true in Florida. Lawsuits to recover an engagement ring by disappointed donors usually are resolved by courts looking to see if the engagement was terminated by the donee or by mutual consent of the parties. The rationale is that rings are given on the implied condition that a marriage ensue.

Once a marriage proposal is extended and accepted — once the promise is made — no matter what day of the year, that ring is no longer considered a gift. It’s a contract to enter into marriage.

The general rule in Florida is that an engagement ring given before the marriage, becomes a non-marital gift if the marriage is completed. If so, the ring becomes the non-marital property of the Wife.

If the engagement ring is viewed by the court as a non-marital asset, it is not subject to equitable distribution in divorce proceedings, and the spouse keeps it as their own.

Reality TV

Relying on real attorneys and not Judge Judy, both sides of the Kardashian case have accused each other in court and in the media of deliberately slowing down the divorce process, which has lasted five times longer than their marriage.

Recently, Kardashian’s attorney told the judge that her client is “handcuffed to Mr. Humphries” because his team is still not ready for trial. The estranged couple is set to return to court in mid-February to determine a trial date.

The Huffington Post article is here.

 

International Divorce Problems

Posted by Ron Kauffman on

The housewife in the middle of one of Britain’s biggest international divorce cases has finally succeeded in serving her billionaire ex-husband legal papers after an attempt to serve them via the messaging app WhatsApp failed, a British court has ruled.

international divorce

Russian Meddling

Tatiana Akhmedova, who is in her 40s, was awarded a 41.5 per cent share of Russian businessman Farkhad Akhmedov’s estate by a British divorce court judge in December 2016. His fortune is estimated to be worth more than £1bn and Mr Justice Haddon-Cave said Ms Akhmedova, who is British, should walk away with £453m.

However, Mrs. Justice Gwynneth Knowles, sitting in the High Court’s family division, said Mr Akhmedov, 64, had “regrettably” not “voluntarily paid a penny” of the money owed and that around £5m had been paid after enforcement.

The judge said she had been trying to serve the application by WhatsApp. That had not worked, ‘probably’ because Mr Akhmedov had blocked the number. An attempt at delivering documents to Mr Akhmedov’s office in Moscow had been ‘refused’.

Mrs. Justice Gwynneth Knowles says Ms Akhmedova has succeeded in serving legal papers relating to an application for asset freezing orders on Mr Akhmedov.

The judge heard that Farkhad Akhmedov had not voluntarily paid a penny to his ex-wife. The judge heard that Farkhad Akhmedov had not voluntarily paid a penny to his ex-wife. Mr Justice Haddon-Cave has ruled that Mr Akhmedov’s £346million yacht, the MV Luna, should be transferred into her name.

International Divorce Issues

Who sues whom, how do you sue for divorce, and in what country are problems in an international divorce? The answers are more difficult than people think. A British divorce might give more money because British courts can disregard prenuptial agreements, and the cost of living is high in London.

In France, things could be very different. Adultery can be penalized, but in the typical French divorce, any alimony could be less and for eight years at most; and prenuptial agreements are binding.

However, in Florida, the outcome could be different still. Under Florida law, alimony is constantly under threat of a major revision by the legislature, and child support is governed by a formula. Courts may award attorneys’ fees, and prenuptial agreements are generally enforceable.

Rules about children can differ too. I’ve written on international divorces, especially as they relate to child custody issues and The Hague Convention on abduction.

The Hague Abduction Convention is a multilateral treaty developed by The Hague Conference on Private International Law to provide for the prompt return of a child internationally abducted by a parent from one-member country to another.

There are three essential elements to every Hague Convention case:

  1. The child must be under the age of 16 years of age;
  2. The wrongful removal must be a violation of the left behind parent’s “rights of custody;”
  3. The left behind parent’s rights of custody “were actually being exercised or would have been exercised but for the removal.”

So, if a child under the age of sixteen has been wrongfully removed, the child must be promptly returned to the child’s country of habitual residence, unless certain exceptions apply. Even signatory countries may be bad at abiding by the convention, especially when it means enforcing the return of children to a parent alleged to have been abusive.

Hiding assets is a problem in every divorce, especially the British case. The problem of discovery of hidden wealth is even bigger in an international divorce because multiple countries, and multiple rules on discovery, can be involved. The problems in an international divorce are more complicated because hiding assets from a spouse is much easier in some countries than in others.

Florida, at one extreme, requires complete disclosure of assets and liabilities. In fact, in Florida certain financial disclosure is mandatory. At the other extreme, are countries which require very little disclosure from people going through divorce.

Choosing possible countries to file your divorce in can be construed as “forum shopping”. The European Union introduced a reform called Brussels II, which prevents “forum shopping”, with a rule that the first court to be approached decides the divorce. But the stakes are high: ending up in the wrong legal system, or with the wrong approach, may mean not just poverty but misery.

Back in Britain

Ms Akhmedova had begun legal action in Britain and abroad, taking steps to freeze his assets. Analyzing the latest stage of litigation, a judge said Ms Akhmedova has at last succeeded in serving legal papers to her ex-husband in relation to an application to freeze assets.

But the judge said the papers were successfully served on August 22 after an email was sent to Mr Akhmedov’s personal email address without a bounce back. The judge has given details of the hearing in a ruling summarizing the latest developments in the case. Neither of the respondents attended the hearing.

A spokesman for Mr Akhmedov has said his ex-wife’s attempts to seize his assets were “as misguided as the original English High Court” ruling.

The Telegraph article is here.