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Los Angeles Times   Employers and Careers for the Next Millennium

Friday, February 4, 2000 | Print this story

Big Money Didn't Buy Them Love
Megabuck divorces spawn a booming new industry. Wealthy soon-to-be exes are enlisting such experts as forensic accountants and separate lawyers for the kids.

By ELIZABETH MEHREN, Times Staff Writer

     Grooms for the ponies, cosmetic dentistry and separate psychiatrists for all three kids: Life can be tough, trying to scrape by on $40,000, $50,000 a month.
     "That's what I spend keeping my expenses low," said Barbara, 46. "You think a judge is going to be sensitive to that? Some guy who makes maybe a hundred grand a year? The judge thinks I'm out of my mind."
     Five years ago, after her marriage to a New York investment titan collapsed, Barbara and her three kids moved to a fashionable suburb of Palm Beach, Fla. Her old hometown of Greenwich, Conn., became unbearable, Barbara said, after her ex got the country club memberships.
     But he didn't get everything. Barbara got millions and millions. Yet as often happens when so many zeros are involved, the money fight goes on. At least once a year, Barbara and her former husband are in court, dueling over support payments that even she admits sound surreal: "The fact that I spend $50,000 a month on just nothing--some people would love to be earning that in a year. We kind of lose our perspective as to what is normal."
     Just what is normal when a marriage is worth hundreds of millions of dollars--or nowadays, billions--such as the pending $11-billion divorce of Viacom chief Sumner Redstone and his wife, Phyllis, or the billions that surely will be at stake if the trial separation of Jane Fonda and Ted Turner turns into a divorce? For a new and expanding class of Americans made wealthy by the giddiest economy in U.S. history, the answer is: divorce planning that sometimes begins before the wedding rings go on; messy, drawn-out disputes conducted outside the glare of public courtrooms; and settlements, along with matching legal fees, that rival a small country's gross domestic product.
     Often, the new riches themselves are at the heart of the once-happy couple's unhappiness. And big-ticket divorces sorely test the cookie-cutter concept of divorce laws that aim in theory to ensure equitable distribution of marital assets and a reasonable standard of living for both parties.
     High-end divorces are "an entirely different game," said attorney Gary Skoloff of Livingston, N.J., "much more enjoyable for lawyers."
     Indeed, Seattle divorce lawyer Mary Wechsler could fill her whole caseload with nothing but high-stakes, high-tech divorces. Beverly Hills attorney Daniel Jaffe, who seldom touches a case worth less than $250 million, could regale a large dinner party with anecdotes about divorce habits of the rich and often-famous. Among his favorites is the aspiring ex-wife whose monthly mandatory expense list included a $500 haircut--for her 4-year-old.
     The staggering sums make megabuck divorces more like corporate breakups than tearful farewells to a lifetime of togetherness. Deconstructing these marriages has spawned a booming new industry. Pre-divorce planning--preparing for the split years before it happens--begins of course with a prenuptial agreement. Marrying without one in this era of big-buck breakups, said New York's Jay Goldberg, the principal divorce attorney for corporate raider Carl Icahn, "is suicide."
     But prenups are under attack in many jurisdictions--such as California, where a Supreme Court decision is expected soon on a challenge by the ex-wife of San Francisco Giant center fielder and multimillionaire Barry Bonds. She claims, echoing the claims of many spouses, that she was coerced into signing their prenuptial agreement.

     Amy Irving, Steven Spielberg Split

     A similar argument helped actress Amy Irving garner a $100-million settlement from director Steven Spielberg. The pair had signed a prenup, but when Spielberg left her for actress Kate Capshaw, Irving successfully maintained that she wasn't represented by a lawyer at the signing.
     With the validity of prenups in question, along comes the postnup, the latest twist in pre-divorce planning. Postnuptial agreements often are drafted to modify prenups, said Santa Barbara divorce lawyer Paul Roberts, but more often, "because of the success of the economy." Thanks to the roaring economy and stock market, Roberts explained, many marriages that started out merely as well-to-do are now super-affluent, and the terms of the prenup are out-of-date.
     Postnups can supersede some aspects of state divorce laws. For example, in California, where the law calls for a 50-50 division of marital assets, a husband or wife might bargain away their community property interest.
     Wealthy people generally have several residences, so couples with big fortunes frequently move from state to state, seeking out the best divorce deal. After six years of litigation in New York, Icahn's estranged wife, Liba, moved to Connecticut and started divorce proceedings there. In megabuck divorce parlance, this practice is known as "forum shopping."
     Enormously wealthy couples can avail themselves of an array of expensive resources, from forensic accountants to highly specialized mediators to separate lawyers (and of course psychologists) for their kids. These parades of highly paid experts make big-money divorces "so different from the average divorce that it's incredible," said attorney Sandra Morgan Little of Albuquerque. "At times, it's almost like you're watching a movie. These are very rich people whose lifestyles are so different from the rest of society."
     In her 1997 divorce from cellular phone pioneer Craig McCaw, for example, Wendy McCaw of Santa Barbara had six attorneys and eight accountants working on the case. In arriving at what is believed to be a $1.5-billion settlement, this retinue of experts sifted through 5,000 boxes of documents, including the records of 30 personal (not corporate) bank accounts.
     There is no evidence that very rich people divorce more frequently than the general population. But psychologists who study divorce such as Santa Monica's Connie Ahrons say that in some cases, big money itself may bring domestic demise. Couples who married each other as computer programmers, only to wake up one day as software magnates, may find that managing a fortune trounces the tenderness that once united them. Wildly divergent spending habits also can suffocate romance, Ahrons said, even when there's plenty of money to spend.

     Divorces Can Be Legal Gold Mine

     When there is enough cash to fight to the last dime, divorces can be a gold mine for lawyers and a nightmare for the participants.
     Barbara of Palm Beach, who did not want her real name used, said her experience has taught her that "it's not smart to be greedy. Pick a number that will allow you some dignity, and don't go for the lion's share. You have to understand, it's not a fair world, and when there's that much money, you're not going to get half, even when you deserve it."
     Phooey, is what Lorna Wendt said to that kind of thinking. Married to GE Capital Chief Executive Officer Gary Wendt for 32 years, Wendt was raised in a home where the word "divorce" was never mentioned, much like some vile social disease.
     When her husband said he wanted out and offered her $10 million, Lorna Wendt said: "You must be kidding." It was a lot of money, she acknowledged, plenty to live on. But for all the years the Wendts were married, Lorna paid the bills and kept the books. She knew it was nowhere close to half.
     "It wasn't the money," she said in an interview in her office in Stamford, Conn. "It was that I knew how much we were worth, what we earned together."
     Their 1996 settlement rewrote the rules for executive divorce when the court agreed that her role as corporate spouse helped Gary Wendt to prosper and should be valued accordingly. Lorna Wendt, 56, got $20 million, and with it, a cause. Her Institute for Equality in Marriage counsels spouses, mostly women, on how to "create and maintain a partnership of equals." Said Wendt: "I've got this new life. Thank you, Gary."
     Among her goals is formal education about marriage and divorce. "People go into marriage without even thinking about it," she said. "You don't have your house painted without a contract. Yet you have the biggest social contract of your life, marriage, and you haven't talked about it."

     Marriages Seen as Valuable Assets

     Wendt's hope is that spouses in big-ticket unions will see the marriage as an asset, as valuable as any of their investments. None of this, she insisted, removes the romance quotient. "Marriage should be about love," Wendt said, "not money."
     But cash, not Cupid, is what complicates these cases. With so much money coming from start-ups, initial public offerings and entrepreneurial acumen, big-buck divorces can present major valuation problems. If a spouse is a principal in a closely held company, it's in his or her interest to place a low price tag on the business, said Miami attorney Maurice Kutner. Cut that figure in half, he said, and you're in the ballpark of what the other spouse can expect to get in a divorce. But when a company is highly leveraged, a business owner may have trouble coming up with the cash.
     Cases like this are so complex, said attorney Jaffe of Beverly Hills, that "generally the entrepreneur knows far more about the business than the nonemployee spouse's lawyer [or accountants] ever will. They are insiders, they know where the company is going. I've been in on meetings with these forensic accountants where I thought the numbers were off. I start to open my mouth to object to an evaluation, and my [entrepreneur] client kicks me under the table."
     Unlike personal injury attorneys, divorce lawyers do not earn percentages of their clients' settlements. Their rates may soar to $500 an hour. Most will not consider a case without a hefty deposit.
     But even lawyers who are accustomed to dealing with gigantic sums get nervous around so many zeros, said Jaffe: "We don't carry enough malpractice insurance. If you blink, you might miss $50 million."
     California has strict rules about disclosure of assets in divorce. As a woman who failed to tell her husband that she had shared a million-dollar lottery prize recently discovered, concealing assets can be worse than splitting them in half. (That woman lost her entire lottery pot when her ex-husband sued, and a judge sided with him.)
     But California is also unusual in the way the state makes it easy for super-rich couples to do their divorcing in private. First, the parties agree to a gag order. Then they arrange to conduct the proceedings in a makeshift courtroom, such as a luxury hotel suite. Next, they hire a rent-a-judge, someone retired from the bench who, for $350 to $500 per hour, is happy to throw on a robe and preside. By agreement, this judge's ruling is binding. Provided that all parties keep their mouths shut and pay up on schedule, the actual agreements, and sordid financial details, never see the light of day.
     When media mogul Rupert Murdoch and his ex-wife, Anna, ended their 32-year marriage in Los Angeles last June, the public portion of their settlement was marked "amicably agreed." Just how Murdoch's $5.6-billion fortune was split up remains confidential.
     California's private judge system long has been a part of the state's civil code. But only in the last 20 years or so, as fortunes have grown, has it come into wide use in divorce cases. The system allows parties to start and stop when they want, and to continue, regardless of a clogged official court schedule. Some private courtrooms feature morning croissants and cappuccino along with opening arguments. In the afternoon, in come the chocolate chip cookies and more cappuccino.
     "You gain about 10 pounds with each one of these," said Jaffe, Anna Murdoch's lawyer, adding that costs for such divorces run about $5,000 per day. "But in the judgments we're talking about, no one cares."
     Former Los Angeles County Superior Court Judge Eli Chernow is now a full-time private judge, mainly in divorces involving hundreds of millions of dollars. One case, his largest, hovered around "the low nine figures." His track record is so good that one wealthy couple wrote a clause in their prenuptial agreement stating that if they were ever to split, Chernow would preside. When the time came, that's what happened.
     Some cases stretch eight to 12 weeks, an unimaginable luxury in the traditional court system. As Chernow observed, "There's no question that the legal system works better for people who have substantial resources."
     Of course, it is also true that "if there is a lot of money and the parties are vindictive and bitter, and really want to hurt each other, they have the resources to inflict all the pain that the legal system is capable of inflicting," Chernow said. "Ordinary middle-class people just don't have that kind of money. They may hate each other, but they've got to find some cheaper way of expressing it."
     Albuquerque lawyer Little said more and more of the very rich are preparing early for the fact that one day, they might hate each other. "We see a lot of people planning for divorce years before it happens," she said. "That is especially true for the moneyed spouse, planning how to make investments, how to take compensation, what kind of contracts to sign for compensation and perks."
     Just 20 years ago, Little said, no one had heard of pre-divorce planning or post-nuptial agreements. Now, she said, "many people plan for divorce because they know it has such an economic impact that they'd better get ready for it beforehand. We also see extended family members, parents, brothers and sisters, helping with divorce planning. I think that really is a change."
     Little said wealthy clients even investigate whether "it would be more advantageous to be in New Mexico than, say, California." They learn that it's a tough call, because in one state, alimony may be lower, while child support is higher.
     Courts in some states also may struggle with high-asset divorces. "Our state is so poor, and the discrepancy is hard for the courts," said Little. "You've got someone who can't afford to pay the minimum for child care--and then the next case walks in and they're arguing over whether their lifestyle includes gardeners and cooks and chauffeurs. This frankly is more than the courts can deal with."
     On the other hand, regardless of who gets the gardener, the cook or the chauffeur, Little said, "everyone in those cases is going to go home that night and eat."
     This is another universal characteristic of high-end divorces. With so much money to go around, agreed Jaffe, "in some ways, these cases are easier to settle, because everyone is going to be well taken care of." Divide up a billion dollars, and whether you get $500 million or $480 million, Jaffe said, "you're still going to get to Gelsons."

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