With Jacqueline Newman, Managing Partner at Berkman, Bottger, Newman and Schein
Steve spoke with Jacqueline Newman, a managing partner at Berkman, Bottger, Newman, and Schein, a high profile law firm in Manhattan. Jacqueline specializes in handling complex matrimonial cases, including prenuptial agreements and divorces for high-net-worth individuals. Jacqueline offered Steve’s listeners a peek inside the ways that divorce among the rich are drastically different from divorce for “regular people.”
Isn’t Divorce Pretty Much The Same For Everyone? (In A word, “No”)
Arguably, divorce proceedings should be roughly the same for everyone. In a perfect world, laws should be clearcut and even-handed and, regardless of a person’s income or net worth, divorce proceedings should, ideally, be fairly uniform. But as F. Scott Fitzgerald once wrote, “Let me tell you about the very rich. They are different from you and me…..”
A possibly surprising fact is that most laws and legal rulings regarding divorce were written primarily for the middle class, where there’s less money involved and where issues such as alimony and child support are usually pretty straightforward. There’s actually not a lot of guidance in the court system for dealing with high net-worth divorces. And yet it’s the ultra-rich who usually have massively complex estates to divide when love goes out the door and the divorce attorneys come in. It’s the job of attorneys like Jacqueline to help their wealthy clients navigate their way through divorce court without ending up in bankruptcy court.
Sorting Out The Numbers In Divorce Court
One issue that inevitably comes up in high net-worth divorces is sorting out the numbers, determining the value of assets. The husband and wife may own a business or multiple businesses, and they may also own real estate, have private equity investments, own a lot of jewelry, etc. Just the process of sorting out and determining the value of all their assets, both jointly and individually held, can get hopelessly complicated. Steve remarked that they probably need to bring in forensic accountants to crunch the numbers.
The plain fact of the matter is that assigning asset values in these cases can be very subjective and, therefore, very difficult to get precisely right. It’s unlikely that any two appraisers are going to come up with the exact same numbers. And, of course, things get much more difficult if the divorce isn’t amicable and the husband and wife start arguing about what the value of various assets is.
Steve concurred with the difficulty of determining asset values, especially in terms of businesses. He noted that there are at least five commonly accepted methods for valuing a company, each of which is going to render a significantly different figure.
Another difficulty could occur when one spouse owns a business, and the other spouse isn’t a recognized co-owner. In this case, the non-owning spouse could still be entitled to a percentage of the value of that business
The liquidity of assets can complicate things even more. Say the husband owns a business and the court decides his wife is entitled to 35% of the determined value of the business. Okay, fine. But what if the husband doesn’t want to sell the business? Where or how is he supposed to come up with the cash value of 35% of what might be a multi-billion-dollar business? Alternately, he may be willing to sell the business, but that could take months or even years. And now what if when he does sell it, the price he gets for it turns out to be 30% less (or 30% more) than what the accountants had pegged the value of the business in the divorce court proceedings? What do you do then?
A Hollywood Example: Robert de Niro’s Divorce
Here’s a real-life example of high net-worth divorce. Robert De Niro is currently divorcing his wife, Grace Hightower. They married in 1997, almost split in 1999, reconciled about five years later but are divorcing now.
As everyone knows, De Niro is a massively successful actor and has earned millions for his films. But he has other wealth as well. He has land, properties, restaurants, valuable but very illiquid assets. He’s also about to jump into a project with his son, which hasn’t come to fruition yet. The two of them purchased land together and are preparing to pour a lot more money to develop the property. The belief is that he and his son will be building a Hollywood style film production hub, which may eventually prove to be a very lucrative venture.
The trouble occurs in calculating how much of the future value of this enterprise Ms. Hightower should get in the divorce. It’s a complicated family dynamic, a lot of illiquid assets, and no easy way to put a value on a business/project that hasn’t even really gotten underway yet. A prenuptial agreement states that she’s entitled to 50% of all earnings that came after the two married. If only it were that simple!
Anytime you’re dealing with a client who’s in the public eye, that generally provides some leverage for their spouse. That’s certainly the case here, as De Niro doesn’t want any publicity. So, Ms. Hightower can play a bit of hardball, knowing that he just wants to get the thing settled and out of the way as quietly as possible. A further complication is that he has investors for the project he’s working on with his son who are, no doubt, pressuring him to settle things so they know where they stand and can move forward. The couple may want to get it settled, but determining values and figuring out a practical and equitable way to divvy things up is just unavoidably complicated.
The Bottom Line For The Ultra-Rich
The simple fact is that divorces can be messy and complicated. This is exponentially truer when high net-worth individuals are involved. Because more assets at higher values are at stake and because valuing the assets and determining how to equitably divide them is rarely a simple process, divorce proceedings can easily drag on for years. Jacqueline noted, “I’ve had some clients who have been divorcing for longer than they were married.” And no one enjoys paying a high-priced attorney for a long period of time, no matter how much money they’ve got. Because of the complexity of their finances and because of what each spouse stands to potentially gain or lose, divorces for high net-worth individuals are often starkly different from those for your average, middle-class couple.
If you’d like to learn more about Jacqueline Newman or her firm, click on this link to the Berkman, Bottger, Newman, and Schein website.
Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.
Steve Pomeranz: Today, we’re going to talk about how divorces among the rich differ from divorces among the middle class. My guest, Jacqueline Newman, is an attorney who specializes in complex matrimonial cases. She negotiates prenuptial agreements, and she basically deals with high net-worth individuals. She’s a managing partner at Berkman, Bottger, Newman and Schein in Manhattan. Welcome to the show, Jacqueline.
Jacqueline Newman: Thanks so much for having me.
Steve Pomeranz: All things being equal—which they generally are not—shouldn’t the courts and laws surrounding divorce be the same for the rich as well as the middle class?
Jacqueline Newman: The answer is arguably yes, however, what ends up happening is that a lot of the laws are drafted to address people in the middle class, and so what ends up happening is that there’s not a lot of guidance for the courts when we’re dealing in the high net-worth space, which then puts us in a position that there’s a lot of discretion with the courts, and things don’t end up being as easy.
Steve Pomeranz: Yeah. Generally splitting assets and determining alimony among the middle class I guess is relatively simple. Also, there’s generally limited money to go around, so the idea is to try to devise a system where attorneys don’t have to play a large role. Is that accurate?
Jacqueline Newman: I mean that would be accurate. The goal would be, ultimately, for the laws to be so clear cut. This doesn’t always obviously happen even in a middle-class divorce, but the idea was that the laws were supposed to be so clear cut that yes, you wouldn’t have to spend a lot of money fighting with attorneys, however, that doesn’t always unfortunately happen. But definitely, when you’re dealing with the high net-worth space, it’s harder.
Steve Pomeranz: Yeah. So what is it exactly that makes it that much different? Okay, the courts maybe play by somewhat different rules because things are just more complicated. What kind of things make it more complicated?
Jacqueline Newman: So for one thing, there’s formulas that we use for let’s say child support. So in New York, at this present time, when you’re calculating child support, you’re only supposed to be considering the combined parental income of $148,000. So when you’re dealing in the high net-worth space, having that type of ceiling really doesn’t help because many clients that I work with are earning many millions of dollars a year. So the courts therefore, have a lot of discretion to say, “Okay, well, we’re not going to apply those formulas to $148,000 because that wouldn’t be just. We can apply it to whatever cap they ultimately want to,” or they can get into doing an analysis of expenses and things like that, and then it becomes very, very discretionary and subjective.
Steve Pomeranz: I guess they hire forensic accountants. So do you find that there’s a lot of fooling around with the numbers, or one party states one thing, the other party states something completely different?
Jacqueline Newman: That does happen. It doesn’t happen as often as Hollywood would make it seem to happen. What ends up happening a lot in the high net-worth space is that the values of assets are really questionable. I mean, again, when you talk about things being a little bit more complex, you’re dealing with when you’re in the high net-worth space, a lot of times people own businesses, they own real estate, they own private equity, they own all sorts of things that you just can’t have a very, very clear value of. So, while especially in a business, for an example, you may have one person that says it’s worth X, and one person that says it’s worth Y. I don’t know if that would be funny business because it really just depends on what a valuator is going to look at.
Steve Pomeranz: There are at least five ways to evaluate the worth of a company. I mean, when you listen to Warren Buffett and those who do this kind of work extremely well, they don’t really know what something is worth because there are many mitigating factors—cash flow, the cyclicality of the business, so many uncertainties and other measurements which work in some cases, don’t work in other cases. So it’s very difficult to come up with a true value. Now I think you can come up with a range, and I guess in your work, that’s kind of what you end up with. There’s a range, and maybe you find a midpoint?
Jacqueline Newman: Yeah, that can happen. I mean the other thing that happens a lot is, in New York, for example, is an equitable state. It’s not an equal state, so it’s not an automatic 50-50 as it is in some other states. So beyond the fact of not being able to get a very clear value of the business, then you’re also going to be fighting about what percentage the non-titled spouse should be receiving of the business. Then you have liquidity issues on top of that because of the fact that even if you get a large number, and you say, “Okay, the one spouse is entitled to that amount,” where’s the money going to come?
Steve Pomeranz: That’s right, right. So I want to get into an example here of someone who everybody knows. Robert De Niro is currently going through a divorce and his wife, Grace Hightower, had been with or has been with De Niro one way or another since 1987. They were married 10 years later, and they almost split in 1999 only to reconcile five years after that. So looking at De Niro, we all know how successful an actor he is. Besides the money that was earned in Hollywood, what is the other nature of his wealth, and what is that estimated to be?
Jacqueline Newman: So my understanding is that he has also built land in Tribeca. I mean I know he built land in Tribeca, and he has restaurants, and he has lofts, and again, we’re dealing with a lot of illiquid assets. My understanding is he also is involving himself in a project with his son. I think that they bought land in Astoria, Queens, and they’re trying to build that out to be maybe to be the next Tribeca, who knows? But buying the land I understand cost 75 million, and then, on top of that ,there was work that they’re going to have to put into it. So it’s going to be a very expensive project.
Steve Pomeranz: Well, Tribeca is one of the hottest zip codes on the planet really, and it was nothing many, many, many years ago. I remember being down there, and I remember it kind of starting to take off, and being the place to be. That was really De Niro’s and his partners coming in there and remaking the place. He’s trying to do the same thing in Astoria, Queens. But according to what I’m reading here, he’s thinking about building a Hollywood style film production hub. Obviously, at the box office his name is golden, so any kind of production hub that he’s going to create has a high probability of success.
But you’re talking about the work could ultimately cost 400 million, and in the years to come, it could be worth many billions. So you’re projecting, if I was on the other side of this, I’d be trying to kind of project, well, what is it worth today? What could it be worth? What is an equitable amount? Then again, it’s really, there’s no cash flow coming in at the point, it’s all money going out. So when you deal with clients of this nature that are so dynamic, how do you start to come to some kind of an agreement?
Jacqueline Newman: I’d say something like this is incredibly challenging because not only you’re trying to predict the future, and you’re trying to value an asset that will be in the future, you’re dealing with family dynamics because having, if you know, Ms. Grace ends up ultimately having an interest in this. Then we’re going to have her son, De Niro’s son, him, and her all being business partners, which may not be the big happy family there. Then on top of that, he needs, De Niro needs to be liquid to invest into this property. So that puts us in an odd situation because I’m sure that his soon to be ex-wife is going to want money, and he needs money right now.
So you’re in this very weird space where you’re getting a divorce, there is a value of future value that I agree with you has the potential to be uber-successful, and then it’s a question of how do we continue to fund that? How do we limit her exposure to that upside? Then, how do we ultimately do something that would be deemed equitable that he can ultimately settle this case because he also doesn’t want to be dragged through the press?
Steve Pomeranz: Now I understand that their agreement states that she’s entitled to 50% of all the earnings that took place after the marriage, so anything before that, not so much. Back then, he was worth about a hundred million according to this article. This was kind of after 9/11, so real estate, New York real estate prices really weren’t so elevated. Today, he may be worth four to 500 million. Again, I think a lot of that is illiquid. I think according to this article, she’s playing hardball because she knows that he hates publicity, and this is probably, and he’s got venture partners that don’t want to upset the apple cart. They’re going to want him to settle this and get her kind of out of the way. She’s making high demands right now. I guess you see that a lot.
Jacqueline Newman: Yeah. I mean anytime you’re dealing with somebody who has a vested interest in the public eye, there’s an element of leverage that exists for the other partner. I mean, whether it be somebody who is divorcing someone that’s a CEO like in the Bezos case that we talked about, you have to look at stock prices. In a situation like this, anytime you’re dealing with any type of celebrities, they care about what the public thinks. For De Niro, he specifically, not only would he care, but he also doesn’t want to go through it. You’re right, they do have investors. So she has a lot of leverage here.
I mean one thing I would say though about the prenup, I mean it’s a very odd prenup that she would get 50% of all of his interests going forward because again, and this is something people fight about, but in businesses, you’re generally not seeing a 50-50 split on business interests. So the fact that she may have an interest in either this that’s occurring right now or a business interest he’d done in the past is odd, but it’s definitely given her a huge leverage in this case.
Steve Pomeranz: You mentioned Bezos, obviously, the founder of Amazon, and there’s a lot of other Silicon Valley founders who get divorces. As a matter of fact, Larry Ellison of Oracle Corp has been divorced multiple times. He’s worth about 60 billion. I think he is the seventh richest person in the world. First of all, their stock is liquid, so it makes it a lot easier. I mean, Amazon is a liquid company, so when Mackenzie, his former wife, and he divorced, he was able to give her stock. But the one thing that he doesn’t want to give her is control. So, do you work on these situations where they can get the value of the assets but also must give up control?
Jacqueline Newman: Absolutely. I mean that’s one of the things that is most important usually to business owners is they don’t want voting rights of an ex-spouse who might be bitter that he didn’t bring the kids home in time for dinner. You don’t want to be in that sort of situation, so assuming that the husband and the wife in that scenario. So absolutely, I mean, having voting rights is an incredibly important thing that when you do give an interest to somebody in a company, I mean, I really can’t think of a case where I had a client that wasn’t involved in the business and then ultimately received voting rights at the end of the day.
Steve Pomeranz: Yeah, so it’s complicated. I guess that’s the bottom line, and then the courts have to deal with all this complication. So going to court can be quite an uncertain activity. You find, generally, how long can these court cases last?
Jacqueline Newman: Oh, I mean it really runs the gamut, but I generally tell people that you’re looking at again, if you went to full trial then it could be a year to two years, and then you’re possibly dealing with appeals after that. I’ve had some people that have been divorcing longer than they were married, so it happens.
Steve Pomeranz: Yeah. Well, I mean they’re creating billable hours, $700 an hour, multiple attorneys. But I guess if you’re a billionaire, it’s just part of doing business, right?
Jacqueline Newman: Maybe, but I can tell you, no matter how wealthy you are, you never like to pay attorneys.
Steve Pomeranz: You just don’t want to pay attorney’s fees. Well, that makes me feel better. My guest Jacqueline Newman, a managing partner at Berkman, Bottger, Newman and Schein in Manhattan. Jacqueline, where can people see you online, or where are your articles?
Jacqueline Newman: You can find me on my firm website, which is www.berkbot.com, that’s B-E-R-K-B-O-T.com.
Steve Pomeranz: Okay, great. Thank you so much, Jacqueline.
Jacqueline Newman: Thank you for having me.
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