In our previous blog, Property Division in Divorce – Jamie McCourt isLooking for the Payoff Pitch, we discussed the divorce of former Los Angeles
Dodgers owner Frank McCourt and how Ms. McCourt asked the court to set aside
her divorce settlement. Specifically, she wanted to nix the previous agreement
because Mr. McCourt sold the Dodgers – an asset he kept in the settlement – for
more than two billion dollars before the ink had even dried on the settlement
documents. The actual sale price for the team was far higher than anyone
thought was possible. While the degree of difference between the anticipated
value and the actual apparent value of this asset is certainly unusual, the
situation is certainly not. People often come to our office wanting to reopen
their divorce case or revise their settlement because something was unfair
about the result. There are occasions where we have prevailed in these
situations. But that being said the person trying to reopen the case is more
frequently on the losing side in court. Here’s why:
The public policy that guides our courts in all legal decisions, including
divorce cases, is the need to create “finality” as to a dispute. When
a case is closed, public policy dictates that it should be over for good.
Period. Thus, only in rare circumstances can a court order, or a settlement
agreement, be set aside. In Ohio, for instance, there is a considerable body of
law which contemplates under what circumstances a case can be reopened. The
allowable circumstances are actually quite rare. Typically the person seeking
to reopen the case must show there was some fraud, mistake, or duress. Thus, one
side must have unfairly taken advantage of the other side. And, the request
must come relatively quickly, no more than a year from the time the court
issued its order or adopted the parties’ agreement. Beyond a year the ability
and reasons why a court would reopen a case become even narrower (typically
that “prospective enforcement” of the terms would be unfair or there
was a fraud upon the court.) Aside from these examples, when the case is over
it is really over.
After knowing what is now known about the value of the baseball team, Ms.
McCourt feels like she got a raw deal in accepting a lump sum settlement of
$131,000,000. (Note that her settlement also included several parcels of real
estate, multiple vehicles, all financial accounts in her own name, and
indemnity against significant back due taxes and other debt.) She argues that
she also should have received her fair share of the more than two billion
dollars received from the team’s sale.
What your divorce lawyer will tell you is that when people divorce usually
one spouse takes the family business and the other spouse is bought out for an
agreed upon or court ordered number. In this way the parties are separated as
much as possible, not only legally and physically, but also financially.
Unfortunately, it is often true that during the process of this separation one
side (the “in spouse”) might have more information than the other
(the “out spouse.”) And, because the out spouse is usually bought out
of the business completely, the determined value of the business is quite
significant. With the benefit of hindsight it is obvious that Ms. McCourt, the
out spouse, made a bad deal. Or, at least, she made a deal that could have been
better. If Mr. McCourt and his attorneys are to be believed, no one could have
known the team would sell for so much at the time the divorce settlement was
made. However, if Ms. McCourt and her attorneys are to be believed, the value
of the team was purposely misstated.
At Zashin & Rich we have had clients who have received a business in
settlement and have subsequently sold it for a windfall as Mr. McCourt claims
to have done. But many others have not been so successful and sometimes the
business significantly drops in value for whatever reason. Certainly, there are
instances of one party being ripped off by the other. But a situation in which
the out party was actively mislead or flat out lied to by the in party, is very
different than an out party’s failure to complete appropriate due diligence or
to hedge bets on what will happen to an asset in the future. That is, whether
or not Mr. McCourt actively hid information about the Dodgers’ value matters.
But whether or not Ms. McCourt did all appropriate due diligence and used that
information to make a settlement decision she believed at the time to be sound
also matters. The mere fact that the decision turned out to be a poor one in
retrospect is largely irrelevant. If every case was subject to being reopened
each time someone sold a business for an amount much greater than or less than
the amount considered at the time of the agreement or court decision was
struck, our courts would work even more slowly than they already do. Things
would grind to a virtual halt. In this case, especially given the stakes, it
seems unlikely that due diligence was missed. And while the court in California
has ruled that financial details of the sale must be turned over to Ms.
McCourt, based on the facts reported so far, our prediction is that Ms. McCourt
will probably not prevail. However, as the facts come out, the final decision
will doubtlessly depend on what each party did and when. Stay tuned….