We all know divorce can get messy, but when high dollar art collections are involved, messy may be an understatement. Just look at David and Libbie Mugrabi. Filing for divorce in late July, the couple is reportedly tussling over their $5 billion art collection – starring works by Pablo Picasso, Jean-Michel Basquiat, Auguste Rodin, Damien Hirst, Jeff Koons and one of the world’s largest Andy Warhol collections.
Things are getting so heated between the Mugrabis. Rumors suggest they even got into a physical squabble involving a $500,000, three-foot-tall Keith Haring sculpture.
One of the most creative attempts at securing art property may be when Sue Gross, ex-wife of billionaire bondsman Bill Gross, reportedly painted a copy of their $37 million, 1932 “Le Repos” Picasso herself, then swapped the fake with the real one hanging in the bedroom. While not the most lawful means of acquiring artwork in divorce, it is certainly one of the most demiurgic.
As a Manhattan-based matrimonial and family law trial and litigation attorney, artwork is involved in nearly every divorce case I handle.
Housing a massive community of galleries, auction houses, and artists, along with the largest concentration of high net worth individuals in the nation, it comes as no surprise that New York City contains more art collectors than any other city in the world.
With 34% of the United States' most influential art collectors (and 9% of global collectors), NYC contains more art owners than the United Kingdom and Germany put together.
Meeting the many interesting members of the art community has been one of the most gratifying aspects of working in New York City. Not only do art collectors influence culture and set trends, but each has their own unique approaches to and incentives for art acquisition and ownership.
Some are born into the art world, inheriting Camille Pissarros and Marc Chagalls that have been passed down for generations. Others travel the world each year to scout out new finds at the Foire Internationale d’Art Contemporain, Art Basel or Frieze.
Some prefer the big auction houses like Sotheby’s or Christie’s. Others like the more stealth approach of private dealers. Many even commission their own pieces.
Whether buying to match an aesthetic, preserve a part of history, or make a smart investment, the interests of New York City art collectors are as diverse as the pieces themselves.
And returns are nice in today’s global market. Global art sales hit $63.7 billion in 2017. For the past 18 years, art has pulled average annual returns of nearly 9%.
For many New York City residents, art pieces are their best-performing assets, outshining real estate, stocks, bonds, and private equity. A Modigliani nude purchased for $26.9 million in 2003 sold for $150 million in May of 2018. Some 1960s Yayoi Kusama pieces are now valued 30 times higher. A Christopher Wool appreciated a whopping 350,000% in just 25 years.
However, during a divorce, art ownership can become a major point of frustration and conflict. If you’re not prepared, you can lose significant monetary value and the art pieces themselves to marriage dissolution.
If you are an art owner who is considering or involved in divorce, I encourage you to become familiar with the obstacles you may face down the line.
As discussed in my new book, The 1% Divorce: When Titans Clash, art collectors and gallerists face a number of unique challenges regarding art asset characterization, valuation, and distribution.
Familiarizing yourself with these potential issues can help you better prepare for divorce and obtain the most positive outcome.
Most Common Questions About Artwork and Divorce
In some cases, parties are able to agree among themselves how best to divide up pieces of art during divorce. But more frequently, art lovers question whether they really want to part with their favorite sculpture or painting.
Do they really want to lose out on the potential returns a Jeff Koons could bring in the next 10 to 20 years?
As with bank accounts, real estate, and other important assets, both parties typically have common questions about their art assets during a divorce, wanting to know:
- Who gets the artwork in divorce?
- Who actually owns the artwork?
- If I don’t get the artwork, will I get a percent of its value?
- What is my art collection’s current value?
- Should I keep the art or sell it?
- Will the artwork sale proceeds be split 50/50?
Who Gets the Art in New York Divorce?
In deciding how to deal with art assets during a divorce, you must determine whether each art piece is marital or separate property.
New York is an equitable distribution state (NY Dom Rel L §236(b)), meaning couples either agree to the property division on their own, or the court decides how to divide the marital property most fairly. In making this decision, the court examines what each spouse contributed to the marital property.
In New York, marital property is any property earned or acquired during the marriage. In general, if you or your spouse purchase an art piece during the marriage, it is a marital asset. Non-marital property includes any property acquired before the marriage or any gifts, inheritance or property delivered to just one spouse during the marriage.
What if a husband bought or inherited his Henri Matisse before the marriage? What if a man entered into marriage with a Lucien Freud collector? Is the art still considered the separate property of the original owner?
In some cases, your separate property can become marital property. This depends on whether the art piece or collection is an active or passive asset.
If it’s a passive asset, meaning it appreciates only because of market forces, the art maintains its separate property character.
If the title to your wife’s Gerhard Richter painting is transferred into both of your names, the art asset becomes marital property. But, if your spouse contributes their time or money to an increase in the value of your separate property, that property may become marital property.
This means if a spouse uses marital monies to pay storage costs for their Mark Rothko collection, the art is marital property. If loans were taken to purchase a Picasso and marital monies are used to pay back the loan, the art asset becomes marital property.
Real estate mogul Harry Macklowe and wife Linda are reportedly working on splitting up their estimated $1 billion contemporary and postwar art collection that includes works by Picasso, Rothko, Warhol, Franz Kline, and Gerhard Richter.
A major question is, who spent the most time and money building the collection? Many say avid art fan Linda built the collection (a Guggenheim and Metropolitan Museum of Art trustee). Harry argues that he is the one who paid for it.
Prenuptial agreements may exclude certain art property from the marital estate. But they may need to explicitly say “marital art property.”
Robert Soros and Melissa Schiff argued for months over their $22 million art collection containing works by Christopher Wool and Jeff Koons. Soros wanted to sell the art while Schiff wanted to keep it. The couple’s prenup stated that if the parties couldn’t agree on property value, the property had to be sold, though it didn’t specifically say “marital art property.”
Do Gallerists Keep the Art in Divorce?
When a gallerist divorces, things can become much more complicated.
New York City houses some of the world’s top art galleries. SoHo’s gallery scene originated during the industrial revolution when New York’s fashion and textile industries constructed commercial lofts in Lower Manhattan. These lofts later served as affordable studios for artists like Jean-Michel Basquiat and Andy Warhol.
Today, Manhattan’s gallery scene has expanded to cover the Lower and Upper East Side, the West Village, Chelsea, and Tribeca.
Gallerists often invest their personal time, labor and finances into identifying, marketing and displaying art. When a gallerist owns art from the artists they represent, the distinction between marital and separate property can get blurred.
On its face, art owned by a gallerist before the marriage is separate property. But when a married gallerist owns the art of someone they represent and actively markets and sells that art, the gallerist could affect the value of the art they own.
If their efforts increase the value (rather than passive market forces alone), the art asset is an active asset and could become marital property.
Say you are a gallerist who inherits a Brice Marden painting worth $10 million. You get married soon after. If you and your wife simply hang the Marden above the fireplace or place it in storage for five years, it maintains its separate property character and is considered a passive asset.
However, if you worked actively within those five years to market Brice Marden’s work – maybe took annual trips to international art fairs like Art Dubai, ARCOmadrid or Paris’ FIAC - and you’ve been successful in increasing the value, the art starts to become marital property.
You’re using your active labor, your time and efforts, to increase the value - and, what you do during the marriage with your time counts.
Art valuation and gallerists raise further questions. Say a gallerist wants to keep an art piece and just give part of the art’s value to their spouse. How does the couple determine the value? Are commission fees from the big auction houses like Sotheby’s and Christie’s included in the fair market value?
Many gallerists represent or own multiple pieces from one artist. They often make deals with up and coming artists to purchase several pieces at discount prices. Are discounts for bulk sales factored in?
In addition, gallerists may own hundreds of art pieces; some considered marital property, some considered separate property. How will they calculate separate property credits?
Business valuation experts are key to determine optimal asset valuation and income capitalization methods. An experienced matrimonial and family law trial and litigation lawyer will have highly qualified business valuation experts on their team, working to help determine the optimum resolution for your case.
How is Art Valued in Divorce?
Large auction houses don’t often get involved with appraising art or testifying for divorce purposes. Instead, business valuators will work on divorce cases. Business valuation experts typically subcontract out to an art appraiser, hiring qualified New York art appraisers like Gurr Johns, Winston Art Group or Abigail Hartmann to value art assets.
Art is valued like real estate, using comparables, or “comps.”
Art appraisers examine the market for comparable items using relevant variables, like the artist, medium, sale volume, and sale date. As the art market is ever-changing, an art appraiser will typically use comparable sales with dates less than five years old to determine the most reliable current value (what a willing buyer would pay a willing seller) for an art piece.
By determining an average price for comparably measured art pieces, the appraiser can assign a present value.
In cases involving newer art pieces, there may be no available comps. Up and coming artists may not have enough public sales from auction houses to evaluate.
Most new artist sales are carried out in private auctions with a gallerist, and gallerists don’t typically report private sales data. Records from private auctions are not made public. They are proprietary to the private auction house and the gallerist. In this case, an experienced New York family law attorney will turn to their team of art appraisal experts to properly value these works.
When is Artwork Valued in Divorce?
When will the art be valued? Since complex divorce cases can last a year or two, the value of an art piece may vary quite a bit from start to finish. Will an art piece be valued at the beginning or end of the divorce?
The date of the valuation depends on the art piece itself. Passive marital art assets that appreciate or depreciate based on market forces alone are assigned a value as close as possible towards the end of the divorce when the asset is either bought out or distributed from the sale.
If an art piece is distributed from the sale, it will be sold without needing an appraisal. If there is a buyout, the art piece will be valued at the time closest to the distribution.
On the other hand, if the art is an active asset (say a gallerist owns an art piece, is representing the artist, and is actively trying to increase the value of the art), the valuation date is closer to the start of the divorce case. Typically, on the date you file the summons.
In cases where separate property has transmuted into marital property, art pieces are valued on the date of marriage. This is because the person who has separate property gets credit for premarital value. You can then determine the separate property credit and marital property portion toward the end of the divorce.
You can see how art asset division in divorce can become complicated. For art owners, collectors and gallerists going through a divorce, an experienced New York matrimonial and family law attorney who understands the ins and outs of art appraisal, valuation and appreciation is vital to a successful outcome.
The best way to ensure that your art assets are optimally valued and divided is to hire a legal team with a panel of expert forensic accountants, evaluators, art appraisers and other specialists who understand how to optimize your case.
Should I Sell or Keep the Art in Divorce?
Now that you’ve determined that your Nicolas de Staël is marital property, are you better off keeping it or selling it? There are benefits and detriments to both.
You could keep the art and pay your non-titled spouse their equitable share. For example, if the artwork is valued at $10 million, as a couple you may decide your spouse is going to get 40%. You keep the painting, and your spouse gets $4 million cash.
Another option is to put it in an auction, sell it, and split the money equally or according to some percentage distribution.
How do most couples decide on a percent distribution? Usually, just one of the two parties is involved in and understands art collecting. One person usually contributes more time and money into the purchase, sale, and maintenance of their art. Those aspects often factor in as to what percentage each party receives.
One of the main differences between selling and keeping an art piece is, when you sell, you realize tax impact, capital gains, and broker’s fees.
If the person keeping the painting never sells, perhaps choosing to leave it in his estate for his children, capital gains are never realized. A broker’s fee is never realized. So, they must pay the higher number. Therefore, to a certain extent, it is beneficial to sell.
The one who keeps the art is going to have to pay the capital gains. It will be shared between the parties, but the titled-owner is going to net out. Selling art is like selling any other asset. You’re going to net out some cash less than the fair market value.
You may also get a bulk sale deduction (if you sell multiple pieces of art from one particular artist for a sale price discount). When you hold onto the art, you don’t often get those deductions.
An experienced New York family law attorney will be well-versed in advice regarding the economic pros and cons of selling or holding onto your art pieces.
Divorce Challenges Involving Large Art Collections
How many pieces of artwork you have in your collection can affect both the valuation method and distribution decisions you make during divorce.
Art collectors across the globe vary in the number of pieces they chose to own. A recent report from the Hong Kong-based website, Larry’s List, suggests that over half of the world’s art collectors own less than 500 pieces of art, while nearly one-third of art collectors own more than 1,000 pieces.
For those who own hundreds or thousands of pieces, things can become complicated. Spouses may argue over the ownership of each piece, whether each piece is separate or marital property, whether each piece has been properly valued.
As you can imagine, divorce trials like these can take years – and most courts aren’t willing to sacrifice the time it takes to listen to testimony on the value of hundreds of separate art pieces.
Valuation of large art collections must be efficient and comprehensive. When cases involve hundreds of art pieces, the more pieces you can agree on regarding the value and property characterization, the better. The more you disagree about the art’s value and separate or marital character, the longer and more difficult the case.
To help facilitate disputes over large art collections, art owners usually choose to have their collection appraised in bulk, separating appraisals for marital property and separate property. If there are personal or sentimental ties to some of the pieces, an art owner can address those pieces separately – outside of the bulk valuations.
In divorce cases that involve minor children, you can use a bulk settlement formula that includes child support to condense the separate arguments.
How to Select an Art Collector’s Divorce Lawyer
Without a knowledgeable and experienced attorney on your side who understands both matrimonial and family law and the inner workings of the New York art industry, art collectors can lose more than they bargained for in divorce court.
Before making agreements regarding your art pieces, make sure you consult with an experienced New York matrimonial and family law trial attorney and litigator who works closely with New York’s best business valuators and art appraisers.
Your New York art collector’s divorce attorney should have:
- 20+ years of trial and litigation experience involving New York spousal maintenance, child support, custody, and equitable distribution
- Experience with ultra high net worth and high net worth individuals working in the various industries across New York
- Understanding of the proper valuation of a wide variety of asset classes
- Resources required to aggressively advocate your case for the best possible outcome throughout litigation and trial
- Interest in the solution that is best for you, whether resolution or assertive litigation
Whether you are passionate about the art you own or acquire art pieces merely for the economic benefit, your personal and financial future is worth protecting and fighting for.
As discussed in my new book, The 1% Divorce: When Titans Clash, preparation is key. When art owners handle their valuable assets intelligently in divorce, they can save significant sums of money - even make money - in the process.
Manhattan-based matrimonial and family law trial attorney Dror Bikel represents clients located in New York City and across New York State. Contact Dror Bikel for a free consultation at 212.682.6222 or online.
As founding partner of the Manhattan-based firm, Bikel & Schanfield, LLP, Dror Bikel’s 20+ years of trial and litigation experience offers invaluable insight in facilitating settlements, mediating disputes and obtaining superior results for his clients. A recipient of the New York Super Lawyers Award, Mr. Bikel is voted among the Top 5% New York State Family Law Attorneys.
Learn more in Dror Bikel’s New York Divorce Guide Series.