How the wealthy people deal with ex-wives

[LRE]

By Matthew Lyn, Bloomberg
Published: April 11, 2009, 22:53


Brian Myerson isn't the first wealthy man to attempt to slash payments to an ex-wife. He won't be the last. As the recession bites, more business tycoons who once traded in their trophy wives the way other men upgrade their cars will apply for post-marital refunds.

Nobody could say the past few weeks were good for Myerson. First he was ousted as chief executive officer of Principle Capital Investment Trust Plc, the investment vehicle he used to lead shareholder revolts. Then a UK court rejected his application to reduce the amount he had to pay his former wife after his net worth plummeted during the credit crunch.

The moralists will have a field day. They will cry that Myerson and other financiers in the same boat are evading responsibility. They will crow that they are simply looking for another bailout, much as they did when the banks went bust.

But even when those points are conceded, it is hard not to see that there is a basic unfairness for the man.

There is a simple solution: Divorce settlements could come with a derivatives contract tied in, so that the fortunes of both former partners could continue to move in tandem. It would be a lot simpler. And it would give the idle math geniuses at investment banks something to do now that nobody wants to buy contracts filled with useless equations.

Two recent cases come to mind. In February, Steven Simkin sued his ex-wife over the share of money invested with Bernard Madoff, who defrauded clients in a $65 billion Ponzi scheme. Simkin, a lawyer, had paid her $2.7 million based on $5.4 million invested with Madoff. With the investment gone, he wanted the money back from his ex-wife.

The Myerson case was even blunter. Last year, the activist investor, a high-profile figure in the London markets, agreed to pay his former wife, Ingrid, £11.2 million ($16.4 million) as part of a lump-sum divorce settlement. (The British courts routinely divide assets equally between couples splitting up.)

Unfortunately, life minus Ingrid turned out not to be as simple or peaceful as he might have imagined. Amid the carnage in the markets, the value of Myerson's assets plunged, so by the end of the year his share of the settlement was worth £1.17 million.

We don't know what Ingrid Myerson did with the money she received. Still, assuming she didn't put the whole lot into Royal Bank of Scotland Group Plc shares or an Icelandic bank, the chances are she will be richer than her former husband.

We can all see the rough logic in that.

The courts don't force anyone to keep their wealth tied up with Madoff, or to hold it in their own investment firm. Either man could have sold, diversified or found some other way of protecting their wealth. And it isn't hard to look at this as yet another plea for a bailout, something the public has had quite enough of.

Still, you would need a heart of stone not to feel some sympathy. You spend your life building a fortune, and at the end you lose most of it, while your ex is living a life of luxury. And if there are individuals who emerge from the turmoil of the past year with even less credit than the money men, it is their wives.

Their wives didn't have to do anything more taxing than issuing orders to the nanny, booking a luxury chalet for skiing trips in the Alps, and battling with other spouses for places in the most expensive school for their small hordes of children.

If the end result of the crunch is that bankers wind up broke while their wives swan off to Monaco to skip taxes and work on their tans, it won't strike anyone as just.

A derivatives contract in banking spouses would be simple. Just feed all the statistics - age, beauty, faithfulness, connections to people called Rothschild and so on - into the computer and it will spit out a discounted current value.

Every divorce settlement could come with a built-in contract. If the husband post-divorce went on to make another mint by predicting the next great oil-price spike, then the wives would collect a share from the increase in his value. If she managed to land a Russian oligarch as her next spouse, then the former husband would be a bit better off.

You could even repackage bundles of ex-wives and ex- husbands into derivatives of derivatives and sell them on an exchange with an AAA credit rating. There might be a small Japanese pension fund unworldly enough to buy into that.

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