Hang on to your Hockney – Protecting art in prenuptial agreements

It is 16 May 2022. Sotherby’s, New York. A collection is being auctioned, achieving the highest total from a single sale in the auction house’s 277-year history. $922.2 million. The culmination of a bitter divorce between Harry Macklowe (property mogul) and Linda Macklowe (prominent art curator).
 

While perhaps not on the scale of the Macklowe collection, disputes around the division of art on divorce are not uncommon. Issues can quickly arise regarding whether the art is joint or sole property, how it will be valued, and most importantly who will be keeping it. The most effective way to mitigate these issues is to enter into a pre or postnuptial agreement, setting out in clear terms how the art will be dealt with if the marriage comes to an end.

A broad-brush approach

When parties divorce and attention turns to dividing the assets, the starting point for the court is equality, i.e. a 50/50 sharing of all assets which were built up during the relationship. This is crosschecked against each parties’ needs, which are assessed by considering their standard of living during the relationship and the wealth and resources which are now available to them, and then against the concept of overall fairness. The needle can therefore move from 50/50, depending on whether either party has capital or income needs which are greater than their half share (and children, for example, are a common justification for that greater need), and whether, in the circumstances, a particular outcome is fair.

Needs can also justify an invasion of one party’s “non-matrimonial” assets, i.e. assets which the party may have owned prior to the relationship or received by way of gift or inheritance during the marriage. The distinction between “matrimonial” and “non-matrimonial” is, however, not always straightforward. For example, a piece of art chosen and purchased during the relationship using funds from a joint investment portfolio could quite rightly be categorised as “matrimonial”, but what about art acquired shortly after the wedding from one party’s sole funds? Is it “non-matrimonial” purely by reference to who paid for it? What if the piece was then displayed in the dining room of the family home throughout the marriage and was presented to guests as though it was owned jointly? The position becomes less clear.

A further issue which can arise is in relation to valuation. The court strives to find the overall net value of the parties’ assets, but often can only do so with the help of expert valuations. The role of an expert is to provide clarity and avoid lengthy legal arguments over value, but as can be seen from the case of GO v YA [2024] EWFC 411, when it comes to large art collections or art businesses, adopting a proportionate methodology can be difficult. In GO v YA, the court considered the husband’s own knowledge and evidence as a collector and art business owner but required that a cross-section of 10% of the 3,000 individual pieces owned by the husband to be expertly valued so that an overall valuation could be extrapolated. It is important to be aware that factors which affect valuations, such as market volatility, provenance and condition, could lead to competing evidence and further disputes.

Even then, if parties can clear the hurdles of characterisation and valuation, the physical division of their art could quickly become the central issue. One party may connect with or feel sentimental about certain pieces, or they may favour keeping a collection together, for the effort which went into curating it and the higher value it attracts as a whole. The court has powers to divide chattels if the parties cannot reach agreement, but it is likely that at least one party will leave dissatisfied with the outcome.

Drawing a line

The purpose of a pre or postnuptial agreement is to remove the uncertainty in respect of how finances will be dealt with in the event of divorce. It is common for one or both parties to attempt to protect or ringfence assets they are bringing into the marriage (“non-matrimonial” assets) so that these do not form part of the pot to be shared. Often these assets will include art, or other valuable chattels such as jewellery, cars, wine or heirlooms.

To protect art in a nuptial agreement, it is important to clearly identify the art or the collection. In order to give an agreement the best chance of being upheld, the parties must (among other things) exchange financial disclosure to the extent that each of them are fully informed about the implications of signing the agreement. Schedules of assets are appended and these should include detailed descriptions of the art, including the title, artist, date and medium. Parties are also obliged to provide values for all assets, therefore it would be prudent, particularly if a party has a large collection, to obtain appraisals or refer to recent documentation which evidences the value of each piece.

Generally, nuptial agreements will characterise assets as either “separate” (to be kept by one party) or “joint” (to be shared in some way, either equally or by reference to contributions). Whether current or future art is intended to be ringfenced or shared, this should be set out clearly in the relevant provisions. Parties will need to approach any future acquisitions with the terms of the agreement firmly in mind. For example, it will be important that joint funds (or a mingling of sole and joint funds) are not used if the intention is to keep a piece within a party’s separate property. The mingling of sole and joint funds or “treating” sole funds as joint, presents a significant challenge when characterising “matrimonial” and “non-matrimonial” property, and requires a detailed (and often costly) investigation into the provenance of assets, which should be avoided if possible.

If the collection is sizeable, or certain pieces are in demand, it may be necessary to consider covering in the nuptial agreement how the income from licensing or gallery and exhibition fees will be treated, or how the costs of maintenance will be met. Additionally, if the art is likely to

appreciate in value significantly, this may need to at least be referenced in the schedule of assets to ensure both parties consider this when signing.

If there is ever a dispute over which items fall within separate property or how they were purchased or maintained, the documentation becomes crucial. Parties will need to rely upon purchase receipts, insurance documents, and/or restoration or conservation records. Most of all however, specialist legal advice should be a priority to ensure that the nuptial agreement minimises the prospects of a prolonged, Macklowe-esque dispute in the future.

Further information

If you have any questions about the topic of this blog,  please contact a member of our team of family and divorce lawyers or click here to get started online and find out where you stand.

About the author

Liam Hurren is an Associate in Kingsley Napley's family and divorce team.