Two birds in the bush don’t count in a divorce

Hohn v. Hohn (Published): Divorce dispute over what counts as the present value of the husband’s interest in a partnership, and what counts as the husband’s future earnings.  As Robin Williams once quipped: “Ah, yes, divorce … from the Latin, meaning to rip out a man’s genitals through his wallet.”

Lest anyone accuse me of coarsening the public discourse with that observation, my defense is that I read it in the Economist.

As the Economist notes, some are expecting a rush to the divorce courts as the spouses of high earners try to get their divorce based on the earnings history of their spouses, before the reality of the sinking markets shows up in the form of paltry Christmas bonuses, etc.  For the Gotham big-shot attorneys representing the titans of Wall Street, this case out of little old Tyler might prove helpful.

The husband in this case is a partner at one of the firms that represented the State of Texas in the tobacco litigation.  The attorney and the firm as a whole are very successful.  They’ve got another big case in the works.  And that’s what the fight is over.  The wife and her expert consider the huge fees that the firm might earn as good as in the bank, making the husband’s current stake in the firm (which is community property) all-the-more valuable.  The Tyler court disagrees. 

Before getting to the ultimate conclusion, the Tyler court notes that the firm’s partnership agreement provisions about what the husband would get if he were to withdraw from the firm do not control the court’s valuation of his present interest in the firm.  Also, the trial court did not, in general, abuse its discretion in allowing the wife’s expert to testify.  The expert had testified to the value of interests in professional firms before (including a prior divorce involving the same firm).  His choice of the income method of valuation over an asset-based method was a choice favored by other experts.

But the wife’s expert included potential fees the firm might earn on the cases “in the works” in calculating the husband’s current stake.  In the words of the Tyler court: “Revenue from these cases is no more than an expectancy interest and any money to be received constitutes future earnings to which [the wife] is not entitled.”  The case is remanded for a re-division of the marital estate.

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