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Broken homes: The anatomy of a divorce, told through luxury real estate
When real estate couples don’t have a prenup, the process can become a labyrinthine mess, as evidenced by the monthslong divorce proceedings of Harry and Linda Macklowe in New York. Harry’s attorneys attempted to minimize the mega developer’s ...
Natalie Hoberman |
March 07, 2018 11:00AM
From left: Divorce lawyers Daniel Jaffe, Laura Wasser and Neal Hersh (Credit: Jaffe Clemens, Hersh Mannis, WCM Family Law, Wikimedia Commons)
A just-divorced woman returned one day late last year to her palatial Los Angeles home to find it reeking of cigarettesWhich was odd, since neither she nor her ex-husband smokedAfter some sleuthing, she discovered that her former partner, who had to surrender the property to her as part of their bitter divorce battle, had collected strangers’ cigarettes and stuffed the butts into the mansion’s air vents.
“That was a house she fought hard for in the settlement,” said Laura Wasser, a divorce attorney whose client roll reads like one half of Hollywood’s A-List.
Divorce is a multibillion-dollar industry in L.AWhen a well-heeled couple splits, an army of attorneys, estate planners, consultants and wealth managers is mobilizedA couple’s real estate ends up being among the most contentious issues in a divorce battle: Who gets to keep the chalet in Aspen? The pied-à-terre in Manhattan? And who stays in the house? When there’s commercial property or active projects involved, things get even trickierBrokers navigating situations like these have to strike a fine balance between advocating for their clients and being sensitive to the situation.
“There’s a lot of acrimony connected to a divorce,” Coldwell Banker’s Joyce Rey saidBrokers will often need to tap their “psychological skills” and have a “little more patience and understanding” when selling such homes, she added.
“[Brokers] really have to be very mutual in their approach and can never let the emotions of the parties get to them,” said Pacific Union’s Aaron Kirman“They have to be very calculated and take it like a businessThey really need to be able to know what the ultimate goal is for both parties so that both of them are on the same page.”
What’s mine is yours
California is a “community property” state, meaning that all assets acquired during the marriage are considered to be jointly owned and are required to be split down the middle in the event of a divorceBut for ultra-wealthy couples, it is often more advantageous to put the estate in “joint tenancy,” said Neal Hersh, another divorce lawyer to the stars.
Joint tenancy is a special kind of co-ownership that contains a clause stating that whichever spouse outlives the other automatically receives the deceased spouse’s property interestIt also provides another, more intriguing provision that allows divorcees to avoid paying off some debt while also retaining their separate contributions to the property, according to Hersh.
Under California Family Code section 2640, also known as the “right of reimbursement” clause, spouses can retain their own contributions to community property assetsThat means that if one spouse put down a $1 million down payment on a $5 million house, they are entitled to receive the $2.5 million for the house, plus the $1 million initially put downThe clause can be waived if it is in writing, such as in prenuptial agreements.
“If you’re repping the money side, you generally won’t waive it,” Hersh said“You want to make sure that they recoup their separate property contributions.”
Figuring out the real estate question can become increasingly troublesome when a divorce involves a developer or landlord, whose primary business is to build and acquire property.
In January 2017, Yvonne Niami, then-wife of film producer-turned-luxury developer Nile Niami, filed for divorceThe event led to speculation that the developer’s spec mansion in Bel Air, for which he is asking a whopping $500 million, might be impactedThe former couple did sell off their Beverly Hills home for $15.6 million two months later, but the spec home project is still onRepresentatives for Niami declined to comment for this story.
Navigating the divorce process for a developer requires first figuring out how much of the portfolio should be considered community property, Hersh saidIf a spouse enters a marriage with an existing portfolio of properties in hand, then that would be considered “separate property.”
But any property acquired with funds earned during the marriage would be considered community property, and subject to splitThat can include the appreciation of property during a marriage.
“If you’re a developer, the question is: ‘What portion of that real estate just went up by osmosis and what part went up to my efforts in creating it?,” Hersh said“If there is separate property before marriage, and it increases, we have to apportion what part of the appreciation is attributable to efforts and which part is attributed to the market.”
Wasser uses a similar strategy when working for her movie producer or screenwriter clients, who are often disputing rights over intellectual property.
“We do the requisite amount of discovery about those properties to figure out how much time and effort went into them,” Wasser said“Often there will be some work that will be put in during the marriage, and post marriage, so [we] make a timelineYou have to figure out what part happened during the marriage, which would be attributed to community efforts, and what part post separation will be attributed to the post-separation efforts.”
Brokers are often called in during the discovery period to provide their expertiseKirman, who says a good chunk of his business stems from divorcing clients, said he’s been called by forensic accountants researching title ownership.
“A lot of the times there’s a discrepancy on value, but the market sets the real value on property so people are always calling us to get information,” he said.
If a developer is trying to buy out a spouse, then the process would usually require an appraisal of each property in a portfolio, said Hersh.
But appraising a whole portfolio can cost millions and months, so sometimes spouses will choose to stay in the various ventures and arrange some sort of interest payment to the developer spouse, according to Daniel Jaffe, a founding partner at Beverly Hills-based Jaffe and Clemens law firm.
“In many cases, parties agree that they will stay partners rather than go through expense of having [a portfolio] appraised, Jaffe said“We’ve got cases going where both the husband and wife own 50 percent and both are going to continue to working togetherOf course, it requires a lot of trust to stay in business with your divorced spouse.”
Of course, a prenuptial agreement could eliminate any chance of a portfolio being split down the middlePrenups are quite common among wealthy Angelenos, Wasser said, and are often encouraged by entertainment attorneys or managers.
Jaffe, among others, speculated that’s likely the case with Niami.
“I’d be surprised if there wasn’t a prenuptial agreement,” he previously told The Real Deal“That completely changes things.”
When real estate couples don’t have a prenup, the process can become a labyrinthine mess, as evidenced by the monthslong divorce proceedings of Harry and Linda Macklowe in New York.
Harry’s attorneys attempted to minimize the mega developer’s fortunes in court, claiming his net worth was negative $400 million while the couple’s joint fortune was $1.3 billionThey did this by invoking the developer’s capital-gains tax obligations, but Linda’s attorney, John Teitler, was having none of it.
“This is a case study in divorce accounting 101,” Teitler said in court“MrMacklowe himself knows these types of [capital] gains are never actually realized by real estate developers.”
For ultra-wealthy couples whose fortunes were made outside real estate, it is often likely that one party will buy out the other on shared property, Wasser saidOr if a couple shared multiple homes, then one spouse will “keep the house in the city while the other takes the house in Malibu,” she said.
But when appraisers on opposing sides value a home differently, things can get iffy.
Jason Fischman, of Appraisal Evaluations, said appraisers are not permitted to commit to a predetermined value or outcomeStill, he’s seen cases where an appraiser from the other team provided a value that was almost double his own.
When fighting for real estate, it is in the best interest of the spouse who wants to keep the house to have the lowest evaluation possible, Hersh saidThat way, the buyout would cost less.
“Each side has their desired outcome and this is the reality,” Fischman said.
Hersh, who’s seen real estate appraisers testify for five days in court just to confirm the value of a house, said there’s lot of pushing and shoving during the processAnd with appraisers like Fischman charging $200 an hour for an appraisal, and $400 an hour for expert testimony, the bills pile up quickly.
Those homes can often be a pain point for brokers as they are never made from a “normal rationale,” Hilton & Hyland’s David Kramer said.
“It is notoriously tough,” he added“It can be a very long painful process and in the end [brokers] just get fired because [the couple is] not happy.”
Kirman said he sees brokers get kicked off listings “all the time.”
“If an agent can’t get a husband and wife to agree,” he said, “they’re not doing their job.”
If a couple knows they’re heading for a split, there are steps they can take to minimize the headache.
Wasser recently launched “It’s Over Easy,” a website that provides a step-by-step guide to splitting up.
Services, which range from $750 to $2,500, include access to family law forms, an interactive co-parenting calendar and artificial intelligence that can help calculate support paymentsIncluded in the forms is a real estate balance sheet, in which couples list their properties under “assets” and “debts.”
People “get a good snapshot of what they have and what they owe and what it will look like if they take on responsibility,” Wasser said“Sometimes you can buy someone out but then you can’t actually afford multiple payments on the house.”
Celebrities who play their cards right can make the most of a difficult situation.
One tactic, dubbed the “Architectural Digest curse” by Slate is when celeb couples on the verge of divorce open their homes to prominent publications in a bid to generate buzz for a property that’ll soon be up for saleJennifer Aniston and Justin Theroux have played that card, according to Architectural Digest, showing off their mid-century modern in a spread just weeks before news of their divorce brokeOther stars who’ve reportedly used the technique include Naomi Campbell and Liev Schreiber, Patrick Dempsey, Marc Anthony and Drew Barrymore.
Hilton & Hyland co-founder Jeff Hyland, who sold silent screen star Harold Lloyd’s $18 million estate during Lloyd’s divorce, said he’ll sometimes be the first to know about an upcoming separation.
“Someone will ask me, ‘What’s my house worth?,’ and if you’ve been in the business long enough, you can tell,” Hyland said“People look to us in our professions for two things — our integrity and confidentiality — so when you get that call you know exactly what to do.”
Tags: Residential Real Estate
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