The art of divorce

Gavel and books, law, divorce

It is not uncommon for art to feature heavily in dramatic tales of divorce, writes Caroline Holley, partner at London-based law firm Farrer & Co.

Last October, The New York Times article ‘Billionaire’s Ugly Divorce Ignites Battle Over Spectacular Art Trove’ described the dispute over nearly $1bn of art in the Macklowe divorce. An auction to sell the renowned collection was set to take place earlier this year – although this was postponed as a result of the pandemic. Similarly, Russell Crowe famously held the ‘Art of Divorce’ in 2018, an auction where he sold his personal collection of Australian art, rumoured to be intended to fund his divorce settlement.

Art collections can have huge financial and sentimental value and are often gifted to or inherited by one or other spouse during a marriage. In the event of a divorce, both parties must consider how division of that art is likely to be approached by the court and how to protect much-loved collections.

Dividing assets on divorce

On divorce, the court has a free hand to redistribute the assets of either party in whatever manner is necessary to provide a fair result. Anything owned by either spouse is available for distribution to the other, including artwork. 

The first stage requires both parties to provide an accurate and comprehensive summary of their financial position, which will include the value of any artwork. Where that artwork is valuable, an expert will likely be appointed to provide a formal valuation, which itself can be a highly contentious issue. As James Carleton, co-head of the art practice at Farrer & Co explains: “Valuations by experts can be contested, as the value of a work may go up and down, according to changing attribution, as well as market and collector sentiment.”

Valuation fluctuations will also impact the tax payable on the sale or transfer of any artwork, which needs to be factored in when determining how artwork should be divided upon divorce. Advice on the likely tax consequences should therefore be taken early on.

Once the value of the assets is established, the court will determine how they should be divided. Judges are given a great deal of discretion, but they must apply the following principles: 

  1. Meeting a spouse’s financial needs.

Meeting financial needs is always the judge’s priority. But ‘need’ is considered in light of factors such as the standard of living enjoyed during the marriage and the length of that marriage. It is therefore possible for a spouse to be awarded many millions to meet their ‘needs’. Inherited or dynastic assets can also be transferred from one party to the other, or sold, to meet needs.

2. If there are more resources than are ‘needed’ by the parties, then the court will consider whether the matrimonial assets should simply be shared between them.

Matrimonial assets are those that have been earned or accrued during the marriage, such as an art collection purchased with funds earned by one of the parties. This reflects the court’s approach to marriage as a partnership, and that fairness requires the fruits of that partnership to be shared at the end of that marriage, regardless of who was the breadwinner. However, inherited assets or assets acquired before the marriage are generally considered as non-matrimonial and are unlikely to be shared unless required to meet needs. It is therefore extremely important to retain evidence of when and with what funds a collection is purchased.

As is evident, ‘the fair’ conclusion to one marriage may be very different to the ‘fair’ conclusion to another.

Protecting artwork from financial claims

Steps can be taken to help protect art collections from divorce, both before and during a marriage.

Pre-nuptial agreements, for example, are impacting divorce settlements in England more than ever before. Although not binding, if they meet certain requirements, the courts can and will hold spouses to their terms. To have an impact, a pre-nuptial agreement must have been freely entered into, with no suggestion that a party was pressured into signing an agreement. Both parties therefore need sufficient time before the wedding to consider and negotiate the terms of the agreement.

The agreement’s implications must be fully appreciated by both parties, meaning that they must fully understand each other’s financial position and what they would be entitled to should they divorce without the agreement, so they can understand what they are “giving up” by entering into it. 

Finally, it must be fair to hold the parties to the agreement in the circumstances prevailing at the time of their divorce, so that, as a minimum, the agreement meets the weaker financial party’s needs. 

When drafted correctly, pre-nuptial agreements can provide effective protection, particularly for inherited assets or assets otherwise acquired before the marriage, including art collections. 

There are also often disputes over gifts made to the parties during the marriage, namely whether the item was gifted to one or both of the parties. Where gifts are made, particularly from family members, it is important to be clear and keep evidence of who the gift is for, as well as to take care regarding ongoing arrangements, such as whose name the insurance policy is in.

The way in which an asset has been treated during the marriage can also be important. For example, if one spouse is gifted a painting during the marriage and hangs that painting in the matrimonial home, then it is more likely to be considered a matrimonial asset. If that same painting had instead been kept elsewhere, such as a museum, then it will be easier to resist that argument. The same applies to inherited assets.

Divorce can be financially, as well as emotionally, devastating. As can be seen, it is very important to consider issues surrounding the division of assets, such as art collections, throughout a relationship, and not just at the point at which it ends. To prevent unnecessary fall-out, couples would benefit from seeking professional advice from the start. 

About the author:

Caroline Holley is a partner and award-winning lawyer at leading London law firm Farrer & Co. She practises all areas of family law, often representing high-profile clients with complex legal needs and is well-known for her expertise in international cases. She advises in high-level financial litigation, frequently involving complex financial structures and multiple jurisdictions, as well as in disputes concerning children, such as abduction, relocation and custody. Her practice also includes non-contentious work, with expertise drafting and negotiating pre- and post-nuptial agreements and advising in respect of surrogacy arrangements.