Under California Family Law, parties in the middle of a divorce or legal separation must serve each other with their disclosures. This includes “a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest … regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties.” (See California Family Code section 2100(c)).
In addition, parties are required to keep each other informed of any changes to these assets, liabilities or conditions until the divorce or legal separation is final.
In the vast majority of cases, a slight miscalculation, error or omission will garner little attention. But when you are the owner of the Los Angeles Dodgers, one of the most expensive and well known professional sports franchises in the world, a slight miscalculation, error or omission could throw a proverbial curve ball into the mix, serving as the grounds for re-opening the case and setting aside the judgment.
Jamie McCourt, the former spouse of Frank McCourt, is arguing in court that she was mislead about the true value of the Dodgers franchise, which Mr. McCourt sold after their 2011 divorce for $2 billion. Ms. McCourt’s lawyers told the court that her former husband’s lawyers represented the value at $300 million. Ms. McCourt later received $131 million in the divorce settlement. By her lawyers’ calculations, Ms. McCourt is owed about $770 million under California’s community property laws.
Now, Ms. McCourt is seeking to set aside the divorce settlement because she believes she was misled about her ex-husband’s assets and their true value.
Were Disclosures Full and Accurate?
A judgment may be set aside for failure to comply with California’s disclosure requirements. An action or motion based on this ground must be brought within one year after the date on which the complaining party either discovered, or should have discovered, the failure to comply. (See California Family Code section 2122(f)).
Ms. McCourt’s lawyers will argue that Mr. McCourt intentionally misled her lawyers about the value of the property before the divorce was final. Specifically, Mr. McCourt never mentioned the value of a potential regional sports network associated with the franchise that had been in development during the proceedings. Mr. McCourt argues that he didn’t know whether that network would ever come to fruition, so he revealed it but never listed it as an asset. It was later valued at about $1 billion.
Whether the judge agrees to set aside the judgment or not is still uncertain. However, the case illustrates why taking your disclosures seriously is so important. Some individuals fail to disclose items like stock options, or deferred compensation, because in practical terms those things have no current value. However, they could later have tremendous value. By not disclosing the assets before the dissolution is final, parties open themselves up to these types of disputes.
Other Grounds for Setting Aside Judgments or Settlements
Noncompliance with disclosure requirements is only one ground for setting aside a judgment or settlement agreement. Others include fraud, perjury, duress, mental incapacity, and mistake.
The stressful consequence of setting aside a marital judgment is that it interferes with what many see as the primary purpose of a dissolution: to move on. So make sure you disclose all of your assets and debts, and to update the other party when there are significant changes to those assets and debts. Failure to do so could bring your divorce or legal separation back to haunt you.