Nassau County Family Law Blog

Monday, May 18, 2015

Asset Appreciation and Divorce Settlements

Will a spouse pay a lower financial settlement if his fortune was gained through luck?

Business executives have become notorious for their high salaries, benefits and perks. To justify this compensation they often talk about how skilled they are, how knowledgeable they are about the market and what great decisions they made over the years. If they are in court because of a divorce, however, a business executive may instead say how lucky he was. That’s because it may result in a lower financial settlement.

This “Jed Clampett defense” has gotten more attention due to the divorce of Harold G. Hamm from Sue Ann Arnall. Mr. Hamm, the chief executive and founder of Continental Resources, who had his wealth peak at more than $18 billion, sent his ex-wife a check in January for $974,790,317.77 to settle their separation. She is appealing the divorce decision to get more, and he is appealing to pay less.

Mr. Hamm claims he should not need to pay as much money as his ex-wife seeks because he was only responsible for a fraction of his great wealth. According to him, the monetary success largely came from forces beyond his control, such as global oil prices, the efforts of his employees and other people’s technology. During a nine week divorce trial, Hamm’s attorneys stated that though Hamm founded Continental Resources and led it to its multibillion-dollar size, ultimately he was only responsible for less than 10 percent of his personal and Continental’s corporate success. His ex-wife and her attorneys have a much higher opinion of Hamm’s abilities. They say he and his business success are more than 90 percent his responsibility.

Why does it matter? In certain jurisdictions, if a spouse owns an asset prior to the marriage, any increase in its value during the marriage is not subject to division if that increase was due to “passive” appreciation (its value grows by itself due to reasons beyond either spouse’s control, like undeveloped land or passively held stocks that increase in price). If the value is not “passive,” it is considered “active” (the increased value came about due to the efforts, skills or funding by a spouse) and can be subject to division in a divorce. The judge in this case sided with Hamm, but he is not happy with the settlement amount the judge calculated.

Whether an asset’s appreciation is “passive” or “active” is just one of many legal and financial issues for a divorcing couple with a family business. If you are going through a divorce and want the help of an experienced divorce attorney who is knowledgeable about equitable distribution and other key issues, contact Howard B. Leff today at (516)739-7500. He serves clients on Long Island and in all five boroughs of New York City.

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