The Chicago Sun-Times, Huffington Post, and The Daily Beast are reporting that Elin Nordegren, the wife of golfing billionaire Tiger Woods, is demanding that Woods renegotiate the terms of their prenuptial agreement after learning of Woods’ multiple infidelities. Under their 2004 agreement, Woods allegedly agreed to pay Nordegren the sum of $20 million if they should separate after ten years of marriage. The recent news reports claim that Nordegren is now demanding $55 million to stay with Woods for another two years, seven years in total.

If the reports are true, why would Woods agree to such terms?  The obvious answer would be “to induce Nordegren to commit to marital reconciliation.” Yet, a less obvious, perhaps more cynical answer would be “to let the negative publicity abate before announcing that the couple is divorcing.” By letting the media firestorm subside, even temporarily until the couple can make a plausible announcement about having attempted to reconcile, Woods might be able to preserve his valuable sponsorships. Pure speculation on my part, sure, but if his sponsorship worth hundreds of millions of dollars per year were at stake, wouldn’t it make sense to throw a little money her way?

This weekend I attended the second annual Divorce Summit sponsored by Business Valuation Resources, one of the leading publishers in the bizval field. On Thursday, September 24, 2009, we heard The View from the Bench, giving voice to a group of family law judges from New York, Illinois, Rhode Island, and elsewhere. One of the standouts was the Hon. Edward Jordan, a family law calendar control judge from Cook County, Illinois. His commentary was insightful and pithy, and I was enchanted by the notion of a calendar control judge who could dispatch cases ready for trial to the judges within a few short weeks. 

When the judges had had their say, it was the lawyers’ turn. A panel of AAML divorce lawyers informed the assembly of bizval professionals “What Lawyers Expect from their Financial Experts.”  The breakout sessions on Thursday and Friday were stellar, starting with “Reasonable Compensation in Divorce” by Ron Signeur and Sharyn Maggio. One of the most useful discussions, in my mind, was the itemized lists of criteria that experts and courts may consider when determining reasonable compensation (hint: article forthcoming).

Another of my favorite breakout sessions was Chris Mercer’s and Ashok Abbott’s  seminar on “Active vs. Passive Appreciation.” In most states other than Pennsylvania, the divorce courts distinguish two types of increase in the value of separate assets. Appreciation in value that results from the efforts of a spouse during the marriage are regarded as separate property, while appreciation due to passive factors such as inflation is part of the marital estate. In Pennsylvania, a corollary concept is the Adelstein argument (where a nonmarital asset has experienced a post-separation increase in value). Mercer presented one of the most compelling analyses I have seen on this issue, quantifying the specific dollar amount of passive and active increase based upon the Gordon Growth present value formula. It was brilliant, and in my opinion, just the starting point of an important development in BV technique (hint: another article forthcoming!).

A Friday breakout on “Transmutation and Tracing” was informative and timely, given the proliferation of this concept in divorce litigation. Fact: some litigants in California are commissioning a forensic accounting of their entire marriage to determine whether property was acquired with community funds or separate funds. 

The Thornhill case (in which Colorado refused to adopt a fair value standard in matrimonial litigation) was highlighted in several presentations. I must say this conference was one of the best I have attended in some time.

Local professional wrestler and former Olympian Kurt Angle has been charged with violation of a Protection from Abuse (PFA) order. His lawyer says that the charges are completely unfounded. His lawyer also attacks the law that allowed Angle’s girlfriend to bring the charges:

Unfortunately, the PFA process allows women (and men on occasion) to fabricate a tale to intake individuals within the court system without any corroborating evidence whatsoever, and the result is that innocent people are served with PFAs that did not do anything.

In Kurt’s case, that is precisely what happened. The woman involved has no injuries, was not threatened, and absolutely no conflict occurred.

We are confident that once a court actually hears the evidence, the PFA will be dismissed. 

The Angle case illustrates why people who are involved in a marital separation or breakup need to understand the PFA law. Victims of domestic violence need to know that there is a law to protect them. The PFA law affords protection to people who suffer from threats, intimidation and stalking, as well as physical abuse.

On the other side of the coin, people who have anger issues need to know that they could become targets of the law and suffer criminal sanctions if they act out toward spouses, children or relatives. This is why it may be hazardous for someone with a foul temper or demonstrative personality to live in the same house with an estranged spouse during separation. You can be liable under the PFA law even if you do not intend to carry out your threats.

Perhaps the PFA law is suspectible to abuse by some who seek its protection. After all, the PFA law permits a victim (real or imagined) to obtain a court order secretly without giving notice to the perpetrator, who may be evicted from the home and banned from contacting the the victim for up to three years. But the law assumes that the protection afforded to real victims of domestic violence outweighs the potential for fraud, and eventually, everyone has his or her day in court.

Including Kurt Angle, I suppose.

Gallows humor is intended to comfort us in troubling times, I suppose. An article in the New York Times offered a new definition of “goodwill” appropriate to the ongoing economic recession. In “Losses in Goodwill Values Dog Bank Deals,” the NYT defined goodwill as “the amount they overpaid for a business compared with the sum of its parts.”

Goodwill appears on the balance sheet of a business when it purchases other businesses. In that context, goodwill is equal to the price paid for the acquisition target in excess of its book value. Every good joke contains a kernel of truth.

It’s natural to feel sad about divorcing. A marital separation or divorce can bring changes that cause stress or discomfort, at least for a while. Yet, recent research by a Harvard psychology professor has shown that the human brain contains a built-in capacity to recover happiness in a relatively short time. Prof. Daniel Gilbert is the author of the book “Stumbling on Happiness” (Random House 2007). Professor Gilbert has done extensive research of the frontal lobe cortex, the area of the human brain that generates our imagination. One thing that separates us from the animals is our ability to imagine experiences we haven’t actually had and judge whether those experiences might be good or bad. But our imagination is flawed. When we imagine what might happen to us, we usually misjudge how good or bad an experience might be. Here’s the hopeful part: when bad things happen to us, our frontal lobe cortex is programmed to “synthesize” happiness in a short period of time. Professor Gilbert found that survivors of catastrophic illnesses were just as happy as million-dollar lottery winners after the crisis period had passed. In fact, most people who have experienced bad events return to normal levels of happiness in an average of three months. More research from Prof. Gilbert: The “synthetic” happiness that our brains create when we recover from bad experiences is just as real and satisfying as the “natural” happiness we feel when good things happen. You might think that we are just fooling ourselves when our brains make lemonade from sour lemons, but Professor Gilbert’s studies show that synthetic happiness is just as good as “real” happiness. The moral of the story? We must keep hope alive as we are surviving a crisis period, like a marital separation or divorce. Our minds tend to exaggerate the good that we remember in the past and over-emphasize the bad when we imagine the future. Knowing that our minds will naturally return us to happiness, we can better survive the change.

I will be appearing as the host of an upcoming Pennsylvania Bar Institute seminar, Business Valuation and Divorce. My guests will be Bob Grossman CPA and Melissa Bizyak CPA of Grossman Yanak & Ford. Bob, Melissa and I will be talking about the hot topics that confront business owners and their lawyers in divorce litigation, including double dipping, tax issues, executive compensation, and the market-based and income-capitalization models for business valuation. It’s a lot to cover; time will fly!

The seminar will run from noon until 4:15 p.m on August 12, 2009 at the PBI Conference Center in the Heinz 57 Building on Sixth Avenue, Pittsburgh (next to the Duquesne Club). It will be broadcast by satellite simultaneously in Philadelphia, Erie, Mechanicsburg/Harrisburg, Washington, Greensburg, Reading, West Chester and Wilkes-Barre. PBI is offering an early bird discount for those who register more than 2 days in advance. Register here!

Fox 5 New York is reporting today that my friend and co-anchor of the Family Law Update TV broadcast, Cheryl Young, is representing Kate Gosselin in her divorce from “Jon & Kate Plus 8” co-star Jon Gosselin. The identity of Jon’s lawyer hasn’t been reported publicly yet.

One of the more interesting aspects of this fascinating celebrity divorce case is the “nesting” custody arrangement. Instead of making the kids move back and forth from Kate’s house to Jon’s house after their parents separate, the kids will remain in the family residence, and their parents will take turns staying with them.

“I’m not very fond of the idea but I know it is necessary,” Kate Gosselin said. “I know it is necessary because my goal is peace for the kids.”

“The kids will remain in the house and Jon will be here when we flip flop days,” Kate said, who also said she would not be in the family’s house when Jon was there.

Nesting custody arrangements are unusual because most parents don’t have the freedom to pick up and move every other week. Yet, this just might be the ideal case for nesting. Can you imagine moving eight kids every week? (How many would forget their homework, soccer uniforms, and toothbrushes at the other parent’s house?) Both parents would have to own huge houses and have nannies for the kids.

Worse yet, can you imagine the magnitude of the child support obligation to support eight kids, which the non-custodial parent would have to pay?

By nesting, the Gosselins could share the same nanny, share expenses for the “kids’” house, avoid the trauma of transferring eight kids every week, and perhaps avoid child support. It seems like an ideal solution, at least for now. It probably satisfies the TV network as well, since they won’t have to film at two separate locations.

How long they can continue to nest is another question. If the parents develop new romantic relationships before the kids are grown, how would a new step-mom or step-dad tolerate living alone every other week? Or, when Kate launches a line of designer clothes, how will she juggle full time work with a nesting custody schedule?

How long will either parent tolerate picking up toys laying around or doing the laundry left over from the other parent’s week in the house? When the living room needs new furniture, who will choose it? (Or, perhaps, who will choose the interior designer who will choose the furniture?)

Incidentally, I have not spoken to Cheryl about any of these speculations. I know nothing more than what I read in the newspapers, so I don’t know if Jon or Kate or their lawyers have considered any of the ideas I am brainstorming.

Will I ask Cheryl any questions about Jon and Kate when we broadcast in October? You betcha! Will she answer? Of course not!

A fun story about a New York wife who needs $53,000 – per week! – in support from her husband, the former United Technologies chairman George David. Well, she’s a countess, after all.

A recent news item by Jen Chung on Gothamist reports that a New York doctor is demanding that his estranged wife return the kidney he donated to her during their separation…. or pay him its value of $1.5 million.

Newsday reports that Batista married wife Dawnell in 1990 and that he donated the kidney in 2001. According to Batista, their marriage was on the rocks then, but “My first priority was to save her life. The second bonus was to turn the marriage around.” Dawnell Batista filed for divorce in 2005. Dr. Batista told
WCBS 880, “She had an affair, then would not reconcile, then handed me divorce papers as I was going into surgery trying to save another person’s life.

My question is, how did Dr. Batista determine the value of the kidney?

A recent edition of Value Matters, a periodical published by Mercer Capital Group, illustrates the reasons for having a buy-sell agreement and what options might be available. Buy-sell agreements are advisable for the same reason as prenuptial agreements: they structure the consequences of a possible future incident such as shareholder disharmony, death, or divorce.

The valuation provisions of a buy-sell agreement, which may dictate the share price in the event of partner withdrawal, death or divorce, must reconcile competing concerns. On one hand, a book value formula might be desirable in the event of divorce or the buyout of a withdrawing shareholder. On the other hand, a below-market share price may result in excessive estate taxes for the beneficiaries of a deceased shareholder. An agreement can provide different formulas for different situations, but must presumably reconcile those inconsistencies or suffer close scrutiny of the courts or IRS.

Trigger events, valuation method, and purpose are some of the important elements of a successful buy-sell agreement. Extensive details are provided, presumably, by Chris Mercer’s book, Buy-Sell Agreements.