Divorce is an emotional process for couples, but it is also a legal and financial process. One of the many emotional aspects of divorce is dividing up prized possessions, and for some, that includes fine art. People can have different reasons why they want to “fight over” a work of art. One person may be attached to a piece because of the pure love of the subject, admiration for the artist, or sentimental value of positive memories in the marriage. Others may want to litigate over a work of art purely for the status or, unfortunately, to cause distress to their onetime partner.
I have been practicing for thirty years and am a certified matrimonial attorney in the State of New Jersey. I have handled cases for athletes, entertainers, business owners, and their spouses—some with assets in excess of $40 million. In addition, I am personally a collector of both modern and American western art, and I am also a member of the Center for Art Law in New York.
The courts are Unsentimental
It’s important to understand the truth about the divorce system. Many people litigate in a divorce due to anger or the importance of “being right.” Sometimes it is worth fighting for specific property through trial, if there are clear meritorious legal issues, but it is rarely the case. The law can be gray. Scorched-earth litigation usually only makes a divorce longer, hurts more people, and costs more money.
Art can have great sentimental value, but it is viewed by the court as just another piece of property, essentially no different than a bank account or a living room set. judges are looking to expediently divide up assets. If the parties cannot work out a fair arrangement between themselves, either through counsel or mediation, the judge who is typically handling hundreds of cases must decide what is fair. He or she will simply use the law as the guide.
Arbitration is an option for the parties to receive more specialized attention to issues around art, but it is still purely a legal decision. The parties may literally be ordered to flip a coin to determine who chooses which piece first, as often happens with personal property. Alternatively, the parties or court can hire joint experts or separate experts to value the art formally. Parties can then exchange art for a credit against another piece of property or cash. Sometimes, unfortunately, appraisals come in far apart and it can cause further delay and conflict.
In the noteworthy case, Macklowe v. Macklowe, the couple’s collection consisted of 165 works of art, many quite expensive. Each person wanted to keep the art and had qualified expert witnesses to testify as to its value. The husband argued for a method called fair market value, while the wife argued for the marketable cash value of each piece. (I’ll describe these methods further down.) There were also arguments over capital gains taxes.
The court divided 86 pieces of art where the experts agreed or were very close in value. Some other pieces had valuation differences ranging between $50,000 to $250,000. Other very rare pieces, such as those by Andy Warhol and Giacometti, had ranges between $50 million and $100 million. Clearly, it was impossible for the court to conclude value strictly from the expert’s variable testimony. The court here was forced to sell some of the works and split the proceeds between wife and husband.
Planning Ahead Can Avoid Conflict
I believe it makes good sense for the couples to plan ahead regarding the ownership of art, along with other assets of importance. It may be hard, at the outset of a marriage, to consider how it might end, but this can save a lot of heartache should the relationship sour.
The couple can draft a prenuptial agreement for existing art prior to the marriage, including clear descriptions, photos, valuations, and inventory. They can also further indicate what their intentions are during the marriage regarding art to be purchased. Alternatively, they can establish a mid-marriage agreement to clarify the ownership to hopefully avoid confusion and litigation in the event of a divorce. I draft these agreements regularly.
A prenup or a mid-marriage agreement is like a lifeboat shown at the beginning of a cruise. Hopefully, the trip is fun, and nothing bad happens. But just in case, the boats are there to avoid greater harm.
Valuations Are Hard to Agree On
As the Macklowe case shows, using experts to value art can be complex. There may be significant differences in appraisals, as valuing art is more subjective than with most items. Unfortunately, a “battle of the experts” can occur regarding any marital asset: homes, businesses, boats, baseball card collections, vintage cars, coins, stamps, and very significant jewelry. We have even dealt with an enormous collection of Hermes purses—one worth over $100,000.
If the parties cannot agree, and the experts differ, again the item will typically have to be sold, sometimes at auction. In the Macklowe case, a receiver was appointed to sell the art because there was no trust between the wife and husband. Property including art and collectibles can incur capital gains taxes also when sold, depending on the increase in value.
Even the valuation methods can differ. One method is the “replacement for new” value. If a work of art was destroyed in a fire or flood, what would an insurance company pay? Another method is the fair market value. What would a willing buyer pay a willing seller for the art? Finally, market cash value is the fair market value, minus selling costs. Unless a couple can agree on valuations, and it might be just better to sell the art and split the proceeds based on real money in hand .
I do not believe that endless fighting and acrimony is a benefit to anyone. If agreements can be drafted before a divorce, or if a compromise can occur during a divorce, this helps all parties and the children they may have.
It can take years to be heard by a judge and cost tens of thousands of dollars for experts to fight over ownership. And at the end of the day, the piece may just be sold and proceeds split. More positive options to consider may be leaving art to the kids, compromising on value, or simply giving up ownership in exchange for something else of importance, such as a vacation home or more cash for your future.
Most of my client’s value ending the fighting and moving on with their lives in a positive way. You can of course buy something new and wonderful in this next stage of your life with the money you save by avoiding the fight.
