Even amicable divorces are high-stress life events, and the best divorce attorneys do their best to shepherd their clients through it. When a divorcing client owns a substantial, beloved art collection, that shepherding process should include advice about taking the emotional heat out of the liquidation process. The best way to accomplish this is to urge the divorcing couple to mutually appoint an art advisor in whom both repose trust. In a divorce action, such a mutually appointed art advisor can accomplish two high-priority objectives: (1) minimizing the divorcing couple’s stress and anguish, and (2) maximizing the proceeds of divorce liquidation sales.
How Art Advisors Reduce the Stress of Divorce
When a couple who treasure their art collection decide to divorce, the stress caused by the collection’s liquidation often feels unendurable. It is not uncommon for a serious art collector to talk about each work as if it were a family member. Acquiring a particular painting or compiling a collection is often a labor of love in which the collector has invested her heart and soul. Often, a particularly cherished piece was owned within a family for several generations, and a client’s emotional attachment to it is intense. In fact, a very common sentiment expressed by divorcing spouses concerning the breakup and liquidation of their collection is: “I’d just as soon sell my own child than to part with that painting!” Many divorce lawyers who aren’t themselves art lovers find such profound devotion to a painting or sculpture incomprehensible. However, the lawyer who fails to appreciate this phenomenon not only fails his client, but he also makes the litigation exceedingly frustrating for himself.
Divorcing art collectors typically want to retain certain pieces rather than liquidating them. Appointing a mutually acceptable art advisor is by far the best means by which heated passions can be diffused when breaking up cherished collections. The process goes like this. The couple hire a mutually acceptable art advisor/appraiser to determine value as to each piece within the collection. In the appointment contract, each spouse must agree that the art advisor’s determination of fair market value is final and unchallengeable. It must also contain a non-disclosure agreement whereby each spouse promises not to disclose to the art advisor their respective wished-for pieces. Then the art advisor establishes value as to each piece. Next, the couple take turns choosing specific works, the selection of that spouse making the first choice being left to chance. When the selection process is complete, the total value of the pieces retained by each spouse is calculated, and the spouse choosing the lowest total value is entitled to a credit as to the distribution of the marital estate’s liquid assets.
The art advisor’s services should extend beyond facilitating in-kind distributions to include art liquidation sales. When divorcing couples negotiate with auction houses and other third parties, emotions typically creep into the haggling, attitudes become fixed, and negotiating positions become intractable. Appointing an art advisor to act as the couple’s nominee to deal with third parties goes a long way in reducing the stress in liquidating a collection. The appointment agreement should set forth the couple’s sale objectives and give the art advisor the sole discretion as to the specific means by which they are to be achieved. The mutual appointment of an art advisor who takes on this task on behalf of both spouses effectively diffuses the situation.
How Art Advisors Maximize the Marital Estate’s Realized Value
Few things excite an art speculator more than a divorce court’s order directing the liquidation of an important art collection. No matter how much you might want to believe that the sale is unforced and orderly within the normal course of commerce, the speculator sees only a fire sale featuring art sold at a painful sacrifice. Once the word is out that the entire collection is being liquidated in divorce, the vultures start to circle, and the game is lost.
Divorce lawyers representing a spouse owning a museum-quality collection must think of the maintenance of the couple’s privacy as a paramount concern. Since each couple share the same interest in maintaining privacy, attorneys for each side should encourage cooperation to achieve that end. And protecting a divorcing couple’s privacy from opportunistic art investors often requires the mutual appointment of an art advisor to act as a third-party nominee for the couple, who remain anonymous as undisclosed principals. Simply stated, the third-party nominee represents to the world that it, not the divorcing couple, is the owner/seller. Sales contracts can be executed in the art advisor’s own name or, more typically, in the name of a limited liability company having no publicly disclosed connection with either divorcing spouse. In this way, the liquidation can be accomplished in multiple markets, no single auction house obtaining the rights to sell the collection as a lot. Anonymity is maximized. The opportunistic buyer has no reason to suspect a distressed sale from which she might profit, and the marital estate is thereby put on the same playing field as every other unpressured seller.
A mutually appointed third-party nominee can also protect the estate’s confidential information by making special arrangements for viewing artwork by prospective private buyers. Privacy is best protected when the viewing venue is well removed from the marital home. Finally, the art advisor can act on behalf of its undisclosed divorcing principals in procuring private buyers as well as negotiating with public auction houses.
Finally, it is important to point out that the strategies discussed above are complex and require legally precise contractual memorialization. Only the most sophisticated professional art advisors and appraisers should be consulted to implement them.