Frank and Jamie McCourt were the envy of Boston. He a successful commercial real estate entrepreneur and she a lawyer, they garnered respect in the community and quickly rose in the ranks of the wealthy elite.Frank and Jamie married in 1979 and have four adult sons. Today they have accumulated numerous real estate holdings and other assets worth an estimated $1.2 billion. On top of their fortune in real estate, they are owners and operators of one very notable closely held business—the Los Angeles Dodgers.
In 2004, Frank purchased the Dodgers from Fox Entertainment Group, Inc. for $421 million. The team is reportedly worth $800 million now, the third most valuable Major League Baseball team after the New York Yankees and the Boston Red Sox.
Prior to the purchase of the team, the couple signed a postnuptial agreement that purportedly made Frank the sole owner of the franchise. The reason this distinction is important is because they were moving to California, a state that operates on a community property system. In a community property system, any acquisition or appreciation of property during a marriage is deemed owned equally by both spouses.
In 2009 the couple decided to separate and a very public and messy divorce ensued. The center of the divorce is the fate of the Dodgers. At the time of the divorce, Jamie was not only invested in the value of the team—she was acting CEO. And last October, Frank fired her.
On August 4th, the court will determine in a one day trial whether the Dodgers are owned entirely by Frank (in which case Jamie would receive $100 million in addition to all of their real estate), or if the couple owns the team 50/50 (in which case the team will likely have to be sold and the proceeds split between them).
There are a few lessons in all of this.
The McCourts, or at least Frank McCourt, attempted to deal with the uncertainty of ownership upon divorce in a postnuptial agreement. The agreement was later invalidated, but a postnuptial agreement can be a good way to pre-negotiate the way the business would be divided in the case of divorce or death.
Additionally, divorcing a co-owner or key employee of your company, such as a CEO, can be as difficult if not more difficult than determining custody of children. Co-parenting often doesn’t work, but both parents feel strongly about being involved. Further, all of the employees, and to some extent the players and fans, have to be wrapped up in the details of this couple’s divorce. A Dodger’s executive was quoted in an ESPN article as saying: “There was a saying in the front office that the three worst days of our jobs would be when Vin Scully died, when Tommy Lasorda died, and when the McCourts decided to split. There was never any question it was gonna go lethal.” The ownership, management, fans—and even Major League Baseball—continue to ride the rollercoaster of the now two year divorce proceeding.
In addition to a postnuptial agreement, all business owners should deal with the impact of divorce on shareholders/owners and prepare for that situation in a buy sell agreement. Divorce can be an event that triggers a mandatory redemption of stock by the company, or a buyout from other shareholders. If planned correctly, a divorcing spouse will not necessarily have rights to continued ownership and management of a company.
The McCourts appear to have plenty of assets to offset the eventual determination of who gets the Dodgers, but in many circumstances the company can be a family’s largest asset and it can be predominately illiquid. The fears of many business owners, and what is becoming a reality for the McCourts, is that in order to finalize the divorce the company will have to be sold.
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