Andrew B Toporoff
It is said that the art market is driven by three D’s: death, debt, and divorce. A recent example of this principle also illustrates the extraordinary discretionary power of judges to award property in divorce. The acrimonious divorce between billionaire developer Harry Macklowe – whose properties include the GM Building and 432 Park Avenue – and his ex-wife of fifty-seven years, Linda, had provided steady tabloid fodder owing to Harry’s courtroom spouse jokes and public displays of love for his new wife (see here), and to Linda’s obstructive actions with respect to her interest in 432 Park (see here) and her alleged rejection of a rumored 1 billion dollar settlement offer. Yet the parties’ spiteful shenanigans were dwarfed in the headlines the moment Justice Laura Drager, who has recently retired but presided over the case, issued an opinion ordering Mrs. and Mr. Macklowe to sell and split the proceeds of an estimated 700 million dollars of art which they had amassed together. The Macklowe collection consisted of 165 pieces of modern and contemporary art by the likes of Picasso, Warhol, Alberto Giacometti, Willem De Kooning, Roy Lichtenstein, Mark Rothko, Cy Twombly, Gerhard Richter, and numerous others. Now, pending the appointment of a “receiver” to handle the sale, the works will be disposed of in the near future either by private sale or auction.
In separate property states like New York, property in divorce is awarded pursuant to a three-step process. In the first step, the marital “pot,” that is, the property subject to judicial division, is determined by characterizing property owned by the spouses as either marital or separate, which is a question of law. Quintessential examples of separate property, which cannot be judicially divided as long as the property was separately maintained, include property which the spouse owned upon entering into the marriage, inheritance which a spouse received in his or her sole name, and gifts made by third-parties to one of the spouses. Once established, the marital property is valued in the second step. Valuation is a question of fact, and for assets which are not self-valuing, valuation turns on the judge’s assessment of the testimony of the parties’ expert witnesses. In the third and final step, judges have discretion to distribute the marital property equitably based on a partnership theory of marriage, the notion being that where spouses have divided their responsibilities and embraced different roles on the spectrum of “breadwinner” and “homemaker,” the non-income earning spouse nonetheless makes important, compensable contributions to the marriage. Some separate property states limit the discretion of judges to distribute property by creating presumptions of a particular division or, as in New York, by providing factors that the judge must consider in making a division. Still, judges at this stage have enormous equitable power, and awards are usually reviewed on appeal under an abuse of discretion standard.
Focusing on the art (and not the homes, business interests, or the yacht) in the Macklowe case, Justice Drager found that the collection was marital property and that for 101 of the 165 total works, the valuations submitted by the parties were either agreed upon or sufficiently close to permit the court to average the valuations (an impermissible valuation method for almost any other asset), or only one party submitted a valuation, which the court accepted. Justice Drager awarded all but one of these works to Linda Macklowe, with Harry Macklowe to be credited for slightly less than half of their value. As for the remaining sixty-four works, the pieces were such rare examples of the artist’s work that no comparable sale existed, thus precluding a valuation. Justice Drager ordered the sale of these works, along with one Warhol with a determinable value for which sale was “necessary because of its extraordinary value and to enable an equal distribution of the marital assets.”
In the words of Justice Drager: “[t]he art collection is the parties’ most valuable marital property. It is an extraordinary collection and the achievement of a lifetime’s effort. It is an artistic accomplishment of which both parties have the right to be proud of having achieved. However, the parties also intended the collection to be an investment . . . the parties did not bequeath any of the art to a not-for-profit entity, nor did they create their own foundation to hold the art, which one might have expected if the intent was to preserve the collection. . . . The court concludes that as much as both parties enjoyed the aesthetics of collecting art, the collection also served as a device to preserve and increase their personal wealth. . . . [T]he sale of these pieces will enable each party to share in most of the value of their lifetime achievement[, while the award of the works to Linda Macklowe] will enable the Wife to continue to enjoy her involvement in the art community.”
Whether or not it was successful, Justice Drager’s attempt to reach an equitable result for the parties shows how equitable distribution poses a threat to the integrity of marital art collections. Although Justice Drager’s quote suggests actions parties might take during their marriage that would disincline a court to dissolve a collection, the Macklowe result should make those who care about art concerned when major collectors get divorced. Although in the context of modern and contemporary art there are still plenty of works to go around, for older and therefore rarer art, it seems possible after Macklowe that where important collectors have contemplated, but not taken affirmative steps toward, giving the public access to their private collection either by means of establishing a foundation or by bequest, the public might be the biggest loser in doing justice to the parties in divorce. After all, as it is also said, auction previews provide an opportunity to see a work for the first and only time – once it is sold, it might disappear from view, at least until the next big “D” event.