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Unless you have been living under a rock for the past week or two, I’m sure you have already heard the news: Arnold Schwarzenegger and Maria Shriver have separated.
Of course, whenever there’s a high-profile celebrity break-up like this, I am bombarded with questions from the media and prospective clients. People wonder about all sorts of things. Are Schwarzenegger and Shriver headed towards divorce? If so, will it be contentious? How will their (quite sizeable) assets be divided?
I can understand the curiosity. After all, when about half of all marriages in the US end in divorce, it’s only natural to hear about a separation like this and ask, “Could that happen to me? What would I do if I was in his/her shoes?”
And, I’m sure it’s no surprise for you to learn that as a Divorce Financial Strategist™, I read the news about celebrity break-ups and start speculating, too. For me, though, the true intrigue always centers on the nitty-gritty financial issues underpinning the division of assets. For example, in this particular case, I’m fascinated by these two specific questions:
1. Does Shriver have a prenup?
2. Why did Schwarzenegger put his movie career on hold?
Let me address these one at a time.
Does Shriver have a prenup? Should she have one?
Short answer: It’s hard to tell –there has been no word one-way or the other.
Don’t forget: The popularity of prenups is a relatively new phenomenon. Certainly, 25 year ago (when Schwarzenegger and Shriver married), they weren’t as common as they are now –even among the wealthy. And because both spouses had substantial pre-marital assets of their own, it’s possible that neither thought a prenup was necessary.
Before I could say whether a prenup would now be beneficial for Shriver or not, I would have to see the exact wording of the document, if they have one, and I’d have to have a full understanding of the assets and income that each spouse had at the time of their marriage.
Prenups can be extremely complex, and the reality is that sometimes they can backfire –particularly if they are not extremely well-worded and a substantial and unexpected change in financial circumstances occurs during the marriage.
For example, I have no idea if Bethenny Frankel and her new husband, Jason Hoppy, have a prenup agreement, and if they do, I don’t what the terms are. Even so, I doubt that either one of them expected Frankel would sell the rights to her Skinnygirl cocktails brand for a cool $120 Million. Such a huge and unexpected change in circumstances might possibly lead a judge to invalidate a prenup if the terms of that agreement are now deemed to be completely lopsided and unconscionable. (This case is even more complicated since Hoppy works for Frankel and could possibly make the argument that his efforts helped make the company more saleable.)
Why did Schwarzenegger put his movie career on hold?
Short answer: There is no short answer to this one.
Schwarzenegger says he put all of his entertainment projects on hold so he can focus on personal matters.
But, the cynic in me thinks there may be even more to it than that.
As I have discussed before, when celebrities divorce, the big thing they fight about is intellectual property rights. These rights cover property such as patents, trademarks, copyrights and royalties and other contractual rights, and depending on the individual circumstances, they can be worth thousands, if not millions, of dollars.
What’s more, any of these intellectual property rights may be considered marital property, which means they may be divided during divorce.
Rules about how intellectual property can be divided vary from state to state, but the general rule of thumb is this: Value that’s created during the marriage must be divided.
So, is it possible that Schwarzenegger put his entertainment projects on hold so that, if the couple does divorce, these new projects would be considered separate property and not marital property?
(For a more detailed discussion of this distinction, see my article about the differences between marital property and separate property.)
If this is his intention, Schwarzenegger must consider this additional critical factor: Under California law, the date of separation draws a very significant line of demarcation. All assets and income acquired from the date of marriage to the date of separation is marital property; anything acquired after the date of separation is separate property.
Shriver left the family home, but will that stand as the date of separation? If so, and Schwarzenegger signed a new movie contract before that date, then the income and assets from that contract are marital property. Anything he signed after that date is separate property and may not have to be divided.
As you can see, all of these matters can become quite complicated, and I’m certain the date of separation could become one of many points of contention if either party recently signed any new contracts.
The divorce dispute between Michael Douglas and his first wife, Diandra, is a good example of how legal battles over intellectual property rights can drag on for years.
Even though their initial divorce settlement was back in 2000, Diandra recently filed suit again, claiming that she is entitled to half Michael’s earnings from Wall Street: Money Never Sleeps, a film released in 2010. Diandra contends that since the new film involves a character that Michael developed in the original Wall Street (which was filmed during their marriage), she is entitled to half of his earnings from the new movie, too.
For Marilyn B. Chinitz, Partner at Blank Rome, who represented Michael Douglas in this latest suit, intellectual property rights can represent one of the most challenging aspects of a high-profile divorce case.
“Intellectual property rights involve many variables and can be valuable –and that’s what makes them so contentious,” she told me recently. “If they divorce, Schwarzenegger and Shriver will have to agree to terms about everything from copyrights and royalties to residual rights and action figure sales, and these rights must be carefully defined in order to avoid difficulties in the future.”
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce. He also advises women business owners on what steps they can take now to “divorce-proof” their business in the event of a future divorce. He can be reached at Landers@BedrockDivorce.com.