Divorce and Asset Management: Not Better, Just Worse?
A recent news article about a hedge fund divorce is a good reminder that pensions, endowments and foundations can be adversely impacted by personal break-ups. (See "Ikos Divorce Rattles Firm; Cash Exits, Staff Gets Ax" by Cassell Bryan-Low, Wall Street Journal, July 26, 2010). Many hedge funds take the form of partnerships or private member entities such as an LLC. When ownership is concentrated in the hands of a few individuals, key person risk merits review, along with a need to ask tough questions about whether and what type of succession plan exists should a prominent player depart from the organization. When marital splits occur and the spouse cum business owner's wealth is concentrated in the equity of the hedge fund enterprise, a judge may force a liquidation to pay alimony. All of a sudden, buy side clients could find themselves with allocations in the hands of new managers, including perhaps the aggrieved husband or wife who now owns his or her "fair" share, post marital bliss.
While somewhat impolitic to inquire about one's hubby, wife or significant other as part of a hedge fund due diligence meeting, an institutional investor is certainly within its rights to ask about how the ownership of the fund as a business might change with a marital dissolution or a disagreement among partners or both. The issue is significant enough that some hedge funds have asked key employees to sign a post-nuptial agreement with the Mr. or Mrs as a way to protect company assets.
Ain't it romantic?
Editor's Notes:
- When I was an appraiser and valued business interests such as ownership in a hedge fund, I co-authored "Complex Compensation Issues in a Divorce" (Forensic Accounting in Matrimonial Divorce, Journal of Forensic Accounting, 2005) with divorce financial planner, Ms. Lili Vasileff .
- One of the few articles I've read about hedge fund succession planning is entitled "Planning for Hedge Fund Manager's Success" (Institutional Investor's Alpha, April 2004) by prominent investment attorney Stephanie Breslow.

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