Wednesday, March 3, 2010

Some post-nup tips.

The Diamond Law Firm ("serving family law clients throughout the Los Angeles area") put out a Press Release today titled "Responsible Drafting of Marital Property Agreements in California." While I'm not entirely sure why it's a Press Release and not just, you know, an article, it is what it is. By way of preamble, it begins:
The high-profile separations and/or divorces of the rich and famous sometimes offer lessons of what not to do when it comes to marriage. The split after 30 years of marriage between Los Angeles Dodgers owner Frank McCourt and his now estranged wife Jamie serves as an example of the importance of properly drafting and maintaining marital property agreements to protect personal property in the event of a divorce.
The friendly folks at Diamond Law Firm offer some basic information about this difficult issue. I'll present it in the context of what went wrong with the McCourts.

Draft early and review often.

Drafting early wasn't an issue for the McCourts. Their post-nup was created prior to their move to Los Angeles. And they did an acceptable job reviewing it, as well. They reaffirmed it through subsequent property transfers. Of course, there came a time when Jamie wanted it to go away, and the couple even had the legal framework drawn up. If that doesn't constitute review, I don't know what does. 

Diamond does bring up one way that the McCourt post-nup is lacking: the parties weren't represented by independent counsel. They contracted out of this potential land mine in the agreement, but you can bet it will be one of Jamie's principal arguments in her attempt to invalidate the post-nup. Personally, I don't like it, seeing as how she's a lawyer. But California courts have done stranger things.

On community property.

Diamond notes that courts will treat marriages differently based on the length of the union and time elapsed since the pre- or post-nup. If, for instance, a pre-nup was signed 30 years ago, prior to the McCourt marriage, and it didn't contemplate anything close to the wealth attained by the couple, it might not be enforced. I don't see the length of the marriage being an issue here.

The McCourt post-nup was created and signed well-after the couple was on its way to remarkable wealth. What's more, the post-nup was made with these specific assets in mind. The intention of the party was to separate the business entities from the real estate. Jamie claims this was done not in contemplation of divorce, but to shield the homes from the businesses' creditors. Frank's response is, and should be, a resounding "so what?"

California courts are more concerned about fairness than the letter of the law.

Diamond suggests that, while the post-nup pretty neatly severs the Dodgers from the real estate, courts may look at commingling of assets as evidence that the assets were not effectively separated. Jamie will argue that the post-nup didn't really do anything. Frank will counter that, on more than one occasion, he surrendered his interest in the residential real estate pursuant to the post-nup. He'll also point to the MLB documents listing Frank as the sole owner and "control person" of the team.

The "Press Release" also notes that a valid post-nup should leave each party with enough assets to support itself in the event of a divorce. Jamie's argument on this point will be that the post-nup, by its terms, leaves Jamie with much, much less than Frank. Two things work against her here. First, she's asking for nearly a million bucks each month in spousal support. That award would serve to bridge the gap between Frank's net worth and her own. Second, it's important to look beyond the dollar amounts. When the post-nup was signed, everyone knew the Dodgers assets were worth more money than the residential real estate. Once you factor in the perceived risks at the time of the post-nup, however, the values even out considerably. 

The post-nup litigation has been pushed back until God-knows-when, so it will be a while before these issues are even briefed extensively. In the mean time, we'll just have to settle for the fight over spousal support, scheduled to begin in court on May 24.

1 comment:

  1. The problem for Frank is that Jamie has been an important part in their accumulating of their "wealth", (their wealth to me isn't that great compare to their lifestyle, which is fueled by debt and leverage) They have been business partners since the first day of their marriage. Their big asset before the Dodgers was the 23-24 acres of South Boston property, which both ran.

    Another problem with the post nup. Frank co signed the mortgages for Jamie's residences in Malibu and probably the Holmby Hills properties.. That is not good post nup behavior.

    I don't see a judge giving Jamie a $150 million in residential properties, while letting Frank holding $450-$500 million in value for the Dodger Franchise. I see more the post nup as a shield for creditors, even though it is a really bad shield, given that Jamie worked for the Dodgers, she was using loans from the Dodgers to fund her lifestyle, and Frank co sign the loans.

    Jamie should stop with that "she was hoodwinked" argument about the post nup. It is obvious she knew what she was doing when she signed the post nup, but I doubt she thought it was would be used against her to block her from a piece of the Dodgers in terms of a divorce.

    I still think the Dodgers will be sold when each party to the divorce, get around $250-$300 million each as part of the final settlement. ($75 million each for property, $200-$250 million for the each share of the Dodgers)