Every once in a while, a high-profile divorce makes financial, as well as social, headlines. While I’m sure that the litigants would happily do without the negative publicity in either realm, their cases often provide divorce financial professionals like me with opportunities to illustrate certain points.
This fall, it’s the pending divorce of Sue Ann Hamm from her estranged husband, Oklahoma oilman Harold Hamm, that’s providing several “teachable moments.” Mr. Hamm is founder and chairman of Continental Resources (CLR), the largest leaseholder in North Dakota’s enormously productive Bakken Shale. With more than $17 billion reportedly at stake, their case is shaping up to be the largest divorce settlement in history.
I’ve written about the Hamms before, as part of a discussion of the pros and cons of hiring your husband to work in your business. Their trial is now underway, and though the judge has enacted significant restrictions on public access to the proceedings and evidence, enough documentation has been released to put the case in financial headlines once again.
As a divorcing woman, what can you learn from Hamm v. Hamm, even if your own settlement is not likely to make you a billionaire? Plenty.
Like most states, Oklahoma’s laws provide for division of marital assets according the principle of “equitable distribution,” which means that the court decides what makes for a fair and equitable split… and it isn’t necessarily 50/50. (By contrast, in “community property” states, spouses are considered equal owners of all marital property and a 50/50 split is the rule).
Several factors are taken into account when determining a fair and equitable division of assets. Of these, two in particular could have significant sway in the Hamm case: 1) active vs. passive appreciation of property and 2) the Date of Separation (DOS).
Active and Passive Appreciation
Active appreciation is increase in value that can be attributed, at least in part, to the contributions or efforts of either spouse, i.e. the growth of your company due to your professional expertise and business acumen. Passive appreciation is increase in value due to outside market forces such as supply and demand and inflation, i.e. if a parcel of land increases in value even though you have made no improvements to it. (See a more complete discussion in my earlier blog post, Understanding How Assets Get Divided In Divorce.)
What does this mean to the Hamms? It means billions of dollars to be gained or lost. The amount of active appreciation during the marriage of assets Harold Hamm owned before the marriage is subject to division in divorce; the amount attributed to passive appreciation is not. Sue Anne Hamm contends that since they were married in 1988, most of Continental’s considerable growth has been active appreciation due to Harold’s leadership and skill (and her own, when she worked for the company as well), and as such, she is entitled to a significant portion. Harold Hamm doesn’t agree. Although it seems difficult to imagine that he could keep a straight face while contending that his company’s tremendous success represents happenstance or dumb luck, that appears to be exactly his position!
What does this mean to you? In divorce, proving active vs. passive appreciation can all come down to documentation. Keep careful track of the reasons for changes in value of property you owned separately before your marriage.
Date of Separation
In divorce, courts need to establish a formal Date of Separation (DOS) to determine various property interests and to serve as a relevant valuation date for certain assets. Some states define the DOS as the date you or your husband actually physically relocated from the marital home. Or it can be the date when one of you started sleeping in the guest room. Other states look to the date on which one spouse officially informs the other of their intent to file for divorce, or the date when a legal separation agreement is signed or the date of the commencement of the action (when an actual court filing is made).
What does this mean to the Hamms? Pioneering the use of fracking to extract oil and natural gas from North Dakota shale, Continental Resources, under Harold Hamm’s leadership, has experienced huge growth in recent years. The longer ago he can claim that he and Sue Ann split, the less of that fortune would be subject to division. Conversely, the more recent the DOS, the more money must be divided with Sue Ann.
What does this mean to you? The DOS might seem arbitrary and can be difficult to determine, but it has significant implications for your settlement. Find out what criteria are used to determine the DOS where you live. If you are in a position to plan, you can often ensure that the DOS falls at the most advantageous time for you. If you know your husband is expecting a substantial bonus, for example, it would be best for the DOS to be after it comes through.
I’m certain we’ll be hearing much more about the Hamms in the weeks ahead. The trial is expected to conclude in October, and with Sue Ann’s settlement anticipated to exceed any in the history of divorce, the outcome will be newsworthy for shareholders and financial professionals alike.
_
Jeff is the author of the new book, Divorce: Think Financially, Not Emotionally – What Women Need To Know About Securing Their Financial Future Before, During, And After Divorce.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
For further information, please go to our website at: http://www.BedrockDivorce.com or email Jeff at Landers@BedrockDivorce.com.
