Divorce advice for divorcing billionaires Part two: Billionaires who marry without a prenup should consider getting a post-nup during the marriage
Get a post-nup!
Sometimes, a billionaire or high net-worth individual loses his or her mind and neglects to get a prenup, prior to marriage. This is bad, but not necessarily fatal. It is possible to go back after the fact and fix the mess. It’s called a post nup. A post nup is similar to a prenup in the sense that it is a contract with your spouse that details how you will share the marital res in the event of a divorce. The difference between a pre-nup and a post nup is that a prenup happens before marriage and the post-nup – you guessed it – happens after marriage.
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But there are legal differences between a prenup and a post-nup. For one thing, before marriage, a potential spouse does not have a marital fiduciary duty to the other. What that translates to is that when two parties sign a prenup, there is no duty to fully disclose all the assets. They can ask the other party to “waive disclosure” or the other party can volunteer to waive disclosure. The other party does not have a “right” to get marriage (engagements can be broken) or a “right” to full disclosure. Their remedy is they can refuse to marry a person who won’t fully disclose. A potential spouse can’t commandeer a potential spouse to fully disclose assets.
The stakes are different with a post-nup however, and the standard is higher because married persons have a fiduciary duty to each other and are legally obligated to fully disclose all assets in order for a post-nup to be valid and to pass scrutiny in the court of law. Disclosure cannot be waived with a post nup the way it can be waived with a prenup.
Billionaires and high net worth individuals must be mindful of this and be careful to disclose all assets. Resist the urge to get the proverbial “offshore account” where you can stash the cash in Swiss accounts and hide it from your spouse. First of all, the IRS is cracking down on all these tax evaders and offshore depositors in Swiss banks like UBS and so, that’s not a good place to hide if you are up to no good. Second, you have to sign an affidavit of net-worth at the time of your divorce. An affidavit is sworn to under oath under penalty of perjury. The consequences of perjury could include jail time and you having to pay your ex, if not treble damages, then certainly, punitive damages in addition to the portion they would have gotten if you had not committed the perjurious, and illegal act. Now, frankly, it is improbable that any defendant in a divorce case will be brought up on perjury charges for lying during a divorce. And there is a statute of limitations for perjury claims. But while it is not likely, it could happen that you are prosecuted for civil perjury and you don’t want to be the exception to the rule. Plus, keep in mind that the statute of limitations begins to run at the time the perjury is discovered.
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Even assuming perjury isn’t an issue, and recognizing that divorce law varies by state, under some circumstances, your spouse can move to set aside the divorce decree on the basis of material fraud as to the financial provisions of the settlement agreement. Case in point, in New York, billionaire hedge fund maestro Steven Cohen is being sued by ex-wife Patricia Cohen twenty years after their divorce. She wants to set aside their divorce settlement and initially she was seeking an additional $300 million from the SAC hedge fund manager. Now, it appears she is seeking a modest $2.75 million – and her claim is that he defrauded her. While the statute of limitations for fraud and perjury have run, Ms. Cohen is suing in federal court, not civil court, under RICO, the anti-racketeering statute. She is accusing her husband of using insider trading information to make millions and failing to share the millions with her in their divorce settlement some twenty years ago. If Ms. Cohen wins her suit, she conceivably could boot her ex husband from his 36,000 square foot Greenwich Connecticut mansion that he holds so dear to his heart.
The third reason you don’t want to hide assets from your spouse and then ask him or her to execute a post-nup is that your spouse will likely hire an asset locator during the divorce proceedings (paid for with your dime) to track down the money. If money is found, it will make you look bad to the divorce court and the court of public opinion, not to mention open you up to a lot of bad press (and, of course, if you are also up to other bad deeds, it will expose you to scrutiny and investigations).
If you value your privacy the way a lot of billionaires tend do, this move may not be worth it in the end. A better approach is to simply fully disclose your assets if you are going to ask your spouse to execute a post nup. It’s always better to do the right thing. Get your spouse to knowingly sign a post-nup after FULL disclosure. Secure independent counsel for each spouse. Video-tape the proceedings. Get witnesses to witness the signing of the documents. Make sure all the I’s are dotted and the T’s are crossed so that no one can come back and say a) they didn’t know b) they were not represented by counsel or C) you lied.
Even with full disclosure, though, there can be hiccups with post-nups. Look at the situation with reported billionaires Jamie and Frank McCourt. The McCourts are the owners of the Los Angeles Dodgers franchise. They have been married more than two decades, and it appears they married without a pre-nup. It also appears that at some point, they signed a post-nup. Jamie, a former divorce attorney (she cut her teeth in Massachusetts) was allegedly the one who came up with the brilliant idea to execute a post-nup. According to testimony in her divorce trial, while she knowingly signed the agreement, and there was “full disclosure” it was never her intent for the post nup to be the final agreement of how assets would be distributed if they divorced. The post-nup, claims Mrs. McCourt, was really a temporary way to protect the couple’s assets from creditors in the event the Dodgers and other business ventures failed. In the agreement, she retained title in about six houses, and Mr. McCourt retained title to the Dodgers.
It is alleged that Mr. McCourt was to have executed a revised post nup that would have provided an equity stake in the Dodgers to his wife but he never got around to it. Consequently, if Mr. McCourt wins the suit, Jamie would receive only about 10% of the marital res in the divorce settlement agreement, and Mr. Court would own 90% of the res ($70 million vs. $700 million)– an unintended consequence of the post-nup that was signed.
This is an anomalous case, however. For other billionaires and their spouses it is highly advisable that if you did not sign a pre-nup, you should, without delay, execute a post nup to safeguard your assets in the event of a divorce. Just ask Roy Disney. This guy tumbled off the Forbes List of Billionaires after his divorce from his first wife, following a 52 year marriage. Here’s a guy who probably wishes he had insisted on either a prenup or, barring that, post-nup, at some point during the marriage. Although, we will never know since he passed away a year after his second marriage to Leslie Disney. It is unclear whether the parties had either a pre-nup or a post-nup at the time of his demise.
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Stay tuned for part three to this series: How to deal with business assets.
Read part one of this series: Get a pre-nup