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Globetrotters Beware - International Divorce!

Globetrotters and their legal advisers, beware! Married business and professional people who spend lots of time overseas-increasingly the thing to do when building a business, or just having fun, in the global village-may end up in the proverbial pickle if they get divorced.

For people who are enjoying the fruits of the new economy, the model of a family unit having a single permanent residency is becoming increasingly outmoded. For wealthy couples facing divorce, this raises serious issues. If one spouse possesses valuable assets or even professional qualifications, and the other does not, the possibility of asserting residency in more than country or state may create enormous danger for one spouse-and enormous opportunity for the other.

There is no global consensus as to how best divide the assets of divorcing couples. Consequently, there are sharp differences between the divorce laws of different countries. Certainly there are vast differences between the divorce laws of New York, where I practise and England, where I formerly resided and taught law.

Let's consider a couple of hypothetical scenarios:

Scenario No 1

Joan and John live in London. John owns a dating agency. Joan is a librarian. They marry. Thereafter, John expands his business onto the Internet and the business explodes. He works day and night, creating the largest singles community in cyberspace, while Joan works regular hours as a librarian and also does most of the house-keeping work. She and John discuss his business as part of their general conversations and she gives him helpful advice from time to time. If they divorce, the English court will not give Joan a share of John's business, even though her support and encouragement helped make it possible for John to expand the business.

But what if, during the marriage, John sets up an office in New York and rents an apartment there? And what if, as he and Joan become increasingly estranged, he spends more and more time over there, even perhaps to the extent of obtaining a long-term visa? If the divorce case is heard in a New York court, subject to New York law, John could suffer a massive reversal of fortune. Joan will assert that her contribution to the increase in the value of the business was extremely significant, because she provided the circumstances that allowed John to focus on the business. She will offer into evidence the report of an expert valuing the business in the millions, while asserting that it was worth peanuts at the time of the marriage. Joan will demand half of the appreciation. Of course, John's expert will offer a much lower current valuation and a much higher initial valuation, but in the end John will lose a huge chunk of his business to Joan, or he will have to make large periodic payments to her for many years to come.

Scenario No 2

Mary and Michael, who are both teachers living in Manchester, get married. Mary thereafter tires of teaching and decides to become a doctor. Michael's continuing income as a teacher supports them both while Mary pursues her medical studies. After she completes her medical qualifications, Mary and Michael decide to divorce. There are no children. Their incomes are both modest, as are their tangible assets. In an English court, this would be a somewhat routine case. There would be a division of their tangible assets but Michael would receive no payment from Mary for having helped her to qualify as a doctor, even though he was instrumental in helping to establish her in what will likely be an extremely lucrative career.

But what if Mary and Michael move to New York during their marriage, so that Mary can take up a position as an intern at a New York hospital? If Michael starts the divorce action in New York, he may well find that he can reap a huge windfall-and Mary may well rue the day that she ever stepped foot in the Empire State. New York courts treat professional licences acquired during marriage as marital assets that must be valued and "equitably" divided. Michael will engage the services of a professional licence appraiser who will create a projection of Mary's vast earning potential throughout the rest of her career. The appraiser will deduct the modest earning potential that Mary would have had if she had stayed as a teacher and he will show the New York court that Mary's medical qualification is a multi-million dollar asset of the marriage-and Michael will doubtless ask for half of the present value of that asset. Of course, Mary will hire her own expert who will provide a much lower valuation and she will assert that "equitable" should mean much less than equal, but Mary must expect to end up on the receiving end of an order from the New York court that will compel her to make hefty payments to Michael for many years to come.

Nature of the problem In both scenarios, the critical significance of the forum stems from the sharp differences between English law and the law in New York and other American states concerning the identification and distribution of marital assets.

Recent cases in New York have held that, if a spouse owned a business prior to the marriage, and if the business appreciated in value during the marriage as a result, at least in part, of the active efforts of that spouse, the appreciated portion of the business will constitute marital property, (for example, Hartog, 85 NY2d 36).

Thus, in a case in which the husband had a pre-marital interest in a company that owned land, the value of the land had increased very substantially in the course of the marriage. Because the husband had attended planning board meetings and had made loans to the company, the appreciation was deemed to have at least partially resulted from his actions, thereby transmuting the appreciation from separate property into marital property. The wife, who had not been involved in the husband's business, was held entitled to 40 per cent of the appreciation, (Ciaffone, 228 AD2d 949, 645 NYS2d 549).

In another case, the value of the husband's interest in a family-owned business had increased from $43,000 at the time of the marriage to over $2.5 million during the parties' four-year marriage. Although this resulted in the main from purely fortuitous circumstances, the court found that 40 per cent of the appreciation was to some extent a result of the acts of the husband-and therefore was marital property, (Du Jack, 221 AD2d 712, 632 NYS2d 895). This approach is diametrically opposite to the approach that an English court would follow.

Likewise, New York courts include as marital property such items as professional licences and professional practices. In a recent case concerning the divorce of a New York attorney, the court valued his law practice (over $2.5 million, of which 50 per cent was awarded to the wife) and separately valued his licence to practise law (over $1.5 million, of, which 50 per cent was also awarded to the wife). In valuing the licence, the court endeavored to avoid "double dipping" by deducting the present value of the income stream used to calculate the present value of the legal practice. The result was an award to the wife, a 52-year-old former teacher with grown children, of more than $2 million in respect of the husband's legal business, separate and apart from her interest in the other marital assets and separate and apart from a substantial lifetime maintenance award of $15,000 a month reduceable to $8,500 a month upon sale of the marital residence. New York's highest court, the Court of Appeals, has recently remitted the case, instructing the trial court to re-calculate the maintenance award, (Grunfeld, 94 NY2d 696).

There are, of course, a great many other significant differences between the laws of the two countries and the same applies in the case of all of the other countries in the world. If lawyers are not aware of these issues they may well fail to provide their clients with the practical advice that they urgently require. However, in many cases, the clients seek legal advice too late, when the facts that will determine the forum and the applicable law are already set.

Tactics Let us consider Mary's predicament, assuming that she seeks advice before the commencement of an action for divorce. It is certainly important that she understands her situation as far in advance of separation as possible. Since New York is a dangerous place for her to be divorced in, she should do whatever she can to get out of there as quickly as possible. She might well choose to return to live in Manchester with Michael and to delay any decision to separate from him until that has been accomplished. This might seem to be cynical forum shopping-and indeed it is! Whoever counsels Mary to do this will have performed an invaluable service to her.

On the other hand, if you represent Michael you would counsel him to file suit in New York as soon as he is able to do so. (There is a one-year residency requirement, which is satisfied even if only the defendant has the requisite residency). It would be of the utmost importance that, before he leaves New York to return to Manchester, he has a full and complete understanding of exactly what the move back to England might cost him.

Looking now at John and Joan, if you represent Joan you might suggest to her that she join John in New York as much as possible and as quickly as possible. It would, of course, be overwhelmingly beneficial to her case if she were to move to New York to join him. And once she decides to divorce it is of critical importance that she do so in New York. John should do the opposite. Once he realizes that divorce is looming, he should cut his ties with New York and run straight back to London.

If you are counselling parties in these kinds of situations-and they will doubtless become increasingly common-you must become fully familiar with the law and the procedure in both jurisdictions. You should be prepared to provide extremely practical advice-and sometimes it is essential to do so with great expedition.

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