If you don't follow baseball news, the McCourt case is the epic divorce battle for ownership of the $800 million Los Angeles Dodgers after a 30 year marriage. After wading through the 100 page court opinion of the case*, I've come to some surprising conclusions about postnuptial agreements. The key point is that Frank and Jamie McCourt signed a postnuptial agreement in 2004 which was found to be invalid.
If the court had come to the opposite conclusion, a 30 year marriage would have ended with the wife owning 15% of assets while the husband received 85%. Does that seem fair? In fact, it almost happened, so let's review the facts of the case.
The couple drafted the postnuptial agreement when Frank purchased the Dodgers in early 2004. After the purchase, the couple planned a move to California from Massachusetts with their four grown sons.
In Massachusetts, the McCourts had previously arranged their multi-millions in real estate under separate titles to protect the assets. That means if they had gotten divorced in Massachusetts, the separate titles would not have mattered because marital property is presumed to be jointly owned. By contrast, once they moved to California, they were in a "community property" state where separate titles have legal ramifications.
There is dispute over what happened during the chaotic process of drafting the postnuptial agreement. Jamie claims that she signed the postnup for asset protection, and had no intention of changing her equal rights to the Dodgers or any other assets titled in Frank's name. However Frank says that Jamie was risk-adverse and traded away her risky Dodger's stake for safer ownership in the couple's residential properties.
Soon after the postnup was signed, the McCourts moved to California and started running the Los Angeles Dodgers with Jamie as CEO. They seemingly forgot they had signed anything.
But in 2007, Jamie and Frank jointly consulted with a California estate-planning lawyer to discuss a living trust. Jamie came to understand that if they divorced, the previous postnup could lead to Frank gaining sole rights to the Dodgers.
Jamie instructed the estate planning attorney to use the living trust agreement to fix the situation. Frank reviewed this revised living trust agreement and apparently agreed to make the Dodgers into community property.
But then Frank refused to sign.
The estate planning attorney told Jamie she had two stark choices, have a "civil conversation with Frank or a nuclear bomb". The attorney sensed that if the McCourts didn't start talking, their marriage would explode. They didn't talk, and the explosion happened.
Frank abruptly fired Jamie as the Dodgers' CEO. Five days later Jamie filed for divorce and litigation followed.
During contentious and conflicting testimony, the court had to consider many factors about the postnup: Did Jamie and Frank have the same intentions? Had Frank met his fiduciary duty to take care of his wife? Was a lawyer's word processing mistake serious enough to throw out the agreement?
Some of the facts read like a comedy of errors, except that it's sad. Jamie and Frank received so many postnup drafts that they barely looked at them. The lawyer never asked if they intended to change their rights of equitable distribution under Massachusetts law. Neither spouse seemed to understand what the postup said.
A good postnup can help a marriage, but in the case of the McCourts, it may have contributed to the McCourt's marital breakdown.
Postnuptial agreements are not always bad, in fact, they can often make a marriage stronger. Here are some lessons from the McCourts' blunders during their postnup process:
Use a family lawyer, not a business lawyer. Family lawyers usually focus on families, while business lawyers and estate planning lawyers generally focus on assets. A postnuptial agreement should be primarily focused on maintaining marital connection.
Sit down and talk. The McCourt's never discussed if they wanted to shift millions of dollars in property rights which was the central implication of the agreement.
Read it carefully, and read it again. Legal documents can be mind-numbing and mistakes get made. Take your time and read every word.
Make sure the agreement is drafted to meet narrow aims. Strip out any unnecessary terms and focus on the matter at hand.
Don't be greedy. A one-sided postnup is not just mean, it's very likely to be ruled invalid.
Be fair. A postnup is supposed to help your marriage. An unfair postnup will always backfire.
*McCourt v. McCourt, Los Angeles County Superior Court # BD514309 (Dec. 7, 2010). If you want to dig deeper, here's more about postnuptial agreements.
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