Sunday, March 28, 2010

We're back in court; what's at stake?

The McCourts are back in...well, court today to determine two key issues rolled into one question: How much money does Frank need to pay Jamie to tide her over during the extended litigation over the post-nup? In deciding this question, a court will have to decide how much Frank must pay toward Jamie's professional fees as well as whether to force Jamie to take actions in compliance with the post-nup.

Frank's take.

Jamie has all the assets she needs in the form of the residential real estate and other property allocated to her by the terms of the post-nup. Whether it's renting, selling, or borrowing on the real estate, she is perfectly capable of generating cash. What's more, her spending on professional fees--lawyers, accountants, PR, etc.--has risen to unreasonable levels. And not only is it inappropriate for Frank to be on the hook for Jamie's several-millions-of-dollars in fees, it's impossible. Because of the way Frank's creditors have arranged their lending facilities, Frank's income is capped at a level which makes paying for Jamie's bills and lifestyle a significant hardship.

Jamie's take.

Frank's representations as to his own present liquidity are misleading and inaccurate. He has access to all the cash required to properly support Jamie throughout this process. Because of the enormous disparity in current earning power, it's only equitable that Frank bear the majority of costs associated with litigation. And under California law, Jamie is entitled to payments enabling her to life the lifestyle achieved over the course of the couple's nearly-30-year marriage. As for monetizing the residential real estate assets, Jamie is not legally entitled to do so; the post-nup's validity in question, disposing of the residences or encumbering them with further debt is not something Jamie is allowed to do on her own.

So what happens?

I don't have the greatest feel for this issue. I have a difficult time seeing either side getting exactly what it wants, though I think Jamie might be more likely to score a thorough victory. From what I've seen, her argument with respect to Frank's income streams is quite persuasive, and I would understand the court's reluctance to force Jamie to comply with the terms of the post-nup, that neat little document causing all this hubbub in the first place.

Still, I can see Frank scoring points on the soaring costs of this dispute; it projects to cost nearly $20 million in professional fees alone. The court is not obligated to rule on the matter right away, but I don't see a reason a decision couldn't be made fairly quickly. The key points of battle--Frank's present liquidity and the extent to which he must fund Jamie's representation--shouldn't require much more analysis than they've already been given.

What are the big-picture implications for tomorrow?

As Bill Shaikin and a few experts discuss here, days like tomorrow mostly serve to weaken the public's trust in McCourt leadership. Frank is arguing that he's cash-poor, and Jamie is arguing that Frank's cooked Dodger books. None of this is good, obviously. And the pessimistic view of tomorrow is that it is little more than litigation about litigation. With respect to the divorce, very little is actually getting done.

While we might have fun talking about these ancillary issues, the big target is still that post-nup, and it's anyone's guess as to when that issue will be resolved with finality. The potential for a major blow on that front coming out of tomorrow's action is small, but real. If the court cuts off Jamie completely, she might need to dispose of some of the residences, which she doesn't want to do. Moreover, if her cash reserves dip too low, she might need to look harder at settling, which she really doesn't want to do.

That's why I'm inclined to like her side a little better tomorrow; a negative outcome is expensive for Frank, but could be devastating to Jamie's ability to argue her side of the divorce. Courts are generally unfavorable to outcomes resulting in an enormous disparity in net worth for divorcing spouses. Because her case could be so damaged by inadequate representation, and because her potential negative outcome is the worst in this case, I think she'll be given every protection possible on the post-nup issue.

Make a prediction!

This is an easy spot to get into some trouble; it's a soft, gray issue. I'd be surprised if either side gets its way, though I do think the court might be more sympathetic to Jamie. I offer the caveat that nothing would shock me, and if I have this one pegged wrongly, I'll certainly be eager to jump into the why and how. I see Jamie getting a significant cash award, though some guidance about reasonable spending during the pendency of the divorce might come with it.


  1. more interesting stuff.

    this divorce is playing out like a bad screenplay. every time new news comes out I just shake my head and think "Man, you can't write this stuff"

  2. Could the court just postpone everything by declining to decide this until the post-nup argument is decided? I.e., if either of the two is short of cash and doesn't want to sell anything just yet, let them borrow (and decide who pays the interest later, when everything else is decided)?

  3. ...or what would amount to almost the same thing: make some judgment about allotting Jamie some monthly allowance from Frank, but only as an "advance", subject to eventual final decision as to whether she has to pay some of it back. And/or if she needs to sell any property to raise more cash, it too considered as joint property pro tem, the proceeds of which will be ultimately divided as per final agreement. Or something like that - just some pro tem arrangement.

  4. I think that last suggestion is eminently sensible.