By Bruce A. Christensen
Family Law attorney Bruce A. Christensen is a shareholder with the litigation and business law firm of Richman Greer, P.A., with offices in Miami and West Palm Beach, Florida. He may be reached at: bchristensen@richmangreer.com.
The issues which impact sports personalities today in the area of family law present some unique situations and challenges. This article will discuss divorce, how tangible and intangible assets are valued, child support and pre-nuptial agreements.
Family law is an area of the law that deals with family-related issues and domestic relations including marriage, civil unions and domestic partnerships; issues arising throughout marriage; and the dissolution (or termination) of the marriage including divorce, annulment, property settlements, child support, shared parenting (custody) and time sharing (visitation) as well as paternity.
U.S. courts generally in resolving a dissolution of marriage distribute the assets and liabilities. Most states do this through “equitable distribution” and others use “community property”. The concepts as they have evolved over the years are not that different. Assets and liabilities acquired during the marriage are divided between the parties. Community property states usually require this be equal. Equitable distribution states often presume equal distribution. The difficulty arises when determining what are to be included as assets.
For sports personalities, in addition to their real and personal property, the valuation of assets also includes the value of their brand. Often a famous sports personality such as Tiger Woods, Michael Jordan or Dan Marino, possess a brand that has great value and in many cases the sports figure may earn more money from their brand endorsements than from their sports. At the time of a dissolution of marriage, if there is an existing branding or advertising contract, what is the value of this? Forensic accountants or valuation experts are often called in as necessary members of a sports personality’s legal team to determine the value of their endorsement and promotional contracts. This effort is far from being an exact science and as has been seen with both Tiger Woods and Bret Favre recently, the “value” can change rapidly with negative publicity. This “brand” is often referred to as goodwill.
Valuing assets and valuing the personality’s future income stream, also spills over into issues of alimony and child support. Alimony is based on need (standard of living) and ability to pay. Example – a $5 million multi-year endorsement contract might include doing a combination of television commercials, being in photographs and promotional materials plus in person appearances. The asset is determined by discounting the present value of the $5 million multi-year contract, not taking into account the cancellation provision.
But when calculating income and the allocation of assets from endorsement contracts, counsel representing the athlete must make sure there is no double dipping. For example, based on our multi-year endorsement contract above $5 million, if $2.5 million is ultimately paid to the recipient spouse, one should not count the other $2.5 million as income to the sports personality for purposes of determining alimony.
Another issue that needs to be identified is celebrity or personal goodwill. This is the value of the brand going forward, but established during the marriage. The concept is that the brand was enhanced during the marriage, and going forward this has a value. Intellectual property and valuation experts with considerable expertise are needed to establish the appropriate value, which at best is often close to speculation. Although not a sports personality, in the case of the late talk show host Johnny Carson’s divorce, his attorneys conceded there was “celebrity goodwill,” but argued it was a negative value because the Tonight Show’s ratings had declined during the term of the marriage.
Another issue facing sports celebrities today is paternity. Some states require HLA testing for paternity; however, DNA testing is preferred since it is 99 percent accurate. Assuming that paternity has been established, issues such as parental rights, shared parenting and child support must be addressed. Most states use combined net income of the birth mother and birth father to determine child support. In many cases, the standard of living of the birth mother is much less than the sports celebrity. If you plug that into the guidelines, you arrive at an astronomical amount for child support. This leads to an issue called “good fortune child support” where an adjustment may be requested. The sports celebrity may request a reduction along with a reasonable assessment of the child’s future expenses. Child support expenses include healthcare, daycare, private school, and in some states college. Expenses typically shared by the parents that factor into child support include housing, transportation, food, etc.
Pre-nuptial agreements are more common now than they used to be. As it relates to sports personalities, endorsement and promotional contracts discussed earlier must be factored in. Existing contracts need to be looked at with a provision in the agreement for future contracts as well. This is a special consideration that might come up that is not common in most agreements. The issue of the celebrity’s personal goodwill factors along with its current and future value, all of which has to be negotiated. It is important to note that issues regarding children conceived during the marriage are technically unenforceable in a pre-nuptial agreement, but the agreement may contain language that is instructive regarding children. Effective pre-nuptial agreements prepare for what will happen during the marriage.
In the context of family law, there are many issues affecting sports personalities today. These issues require well thought out strategies and expertise along with the right team of experts.
