Contrary to common belief, the main issue in the Frank and Jaime McCourt divorce trial is not ownership of the Los Angeles Dodgers: the parties are actually fighting over the legal effect of a postnuptial transmutation agreement.
In 2004, Frank McCourt purchased the Dodgers for $430 million, largely through debt. Since Frank was married to Jaime at the time, the ownership of the Dodgers was community property, meaning that both Frank and Jaime owned it together. While community property may be a good thing for both spouses, this also meant that creditors for either Frank or Jaime may have access to the Dodgers if either cannot afford to pay his or her debts.
In order to protect themselves from this unfortunate situation, Frank argued at the divorce trial that they agreed to divide their community property into separate property: Frank would have separate ownership of the Dodgers, while Jaime would have separate ownership of all of their other assets. Since creditors cannot go after the separate property of the non-debtor spouse, if Frank defaulted on the loans he took out to purchase the Dodgers, the creditor could not go after Jaime’s separate property (which included seven residences and two parcels of unimproved land). Conversely, Jaime’s creditors could not go after the Dodgers to satisfy Jaime’s debt.
The problem is that the change in value of the respective separate assets. The Dodgers are now worth $727 million, while the real estate market has plunged since 2004. During trial, Jaime claims that she never agreed to allow Frank to have separate ownership of the Dodgers.
Another issue is that they hand signed what they thought were six duplicate copies of the transmutation agreement. Unfortunately, three of the copies state that the Dodgers were sole property of Frank, while the other three copies state the Dodgers are owned by both Frank and Jaime.
Though things have not worked out for Frank and Jaime, transmutation agreements are a useful way to protect your assets from creditors. By agreeing to divide marital assets and distribute them as separate property, you and your spouse can feel more secure investing in higher risk investments by exposing only one spouse’s separate assets to creditors. The other spouse will keep the couple’s most important assets, such as the residence, in his or her name, thereby protecting creditors from attaching these important assets to satisfy the one spouse’s debt.
One thing to keep in mind is that transmutation agreements cannot be fraudulent. Courts will look closely if one spouse has no separate assets, or very little separate assets, and that spouse makes the risky investment. Thus, you must the distribution of assets must be as close to 50/50 as possible.
If you or someone you know is married and wishes to consult with a Los Angeles family law attorney about transmutation and asset protection, call the Southern California family law attorneys at Wallin & Klarich. Wallin & Klarich has practiced family law for over 30 years, and we have a great deal of experience in a variety of family law matters. Call us today at (888) 749-7428 or visit us at our website at www.wkfamilylaw.com. We will be there when you call.
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