The divorce of Oklahoma oilman Harold Hamm from his ex-wife Sue Ann Arnall has made both social and financial headlines at every stage. With billions of dollars at stake (the marital estate was reportedly valued at around $18B), the settlement had potential to be the largest one in history.
Hamm is the founder and CEO of Continental Resources (CLR), the largest leaseholder in North Dakota’s oil-rich Bakken Shale. Ms. Arnall is an attorney and former Continental executive.
Continental’s investors watched the divorce proceedings carefully, considering the impact an enormous settlement could have on the share price of company stock. Most likely, there was also concern about the untold time and expense Continental’s own attorneys were devoting to the divorce effort.
When the ruling was made a few months ago (in November 2014), Ms. Arnall was awarded about $1 billion in cash and assets to be paid by Hamm over a period of years. She soon appealed that decision, contending that $1B doesn’t represent an equitable distribution of marital assets.
At this point, you’re undoubtedly wondering exactly how a billion dollars could ever be called “not enough.” Keep in mind that it isn’t the dollar amount that’s being deemed inadequate. Rather, it’s the equity of the settlement. To Ms. Arnall, the problem is not that the amount isn’t high enough; it’s that it isn’t fair enough.
Ms. Arnall’s position is fairly straightforward, and her appeal was probably expected. Weeks later, though, Harold Hamm also appealed the decision. In doing so, he appears to have done an about-face. Having reportedly called the ruling “fair and equitable” at the time, he’s now decided that it was “erroneous and inequitable.”
Why the change of heart? Well, with the recent decline of oil prices, the value of Hamm’s shares of Continental stock has taken a nosedive, and so has his net worth. (Both have reportedly fallen about 30%). Apparently, he now considers $1B to represent a significantly bigger chunk of “his” assets than he’s willing to give up to his ex.
But there’s more to this story than one side saying “it’s not enough!” and the other saying “it’s too much!” The dispute about fair and equitable division of the Hamm marital assets is centered on the concept of active vs. passive appreciation. Let’s review what that means:
Active appreciation is increase in value that can be attributed, at least in part, to the contributions or efforts of either spouse. If you own a company that grows and succeeds because of your ideas, leadership and business acumen, that increase in value is due to active appreciation.
Passive appreciation is increase in value due to outside market forces such as supply and demand and inflation. For example, suppose you’ve owned a parcel of land for 20 years. In all that time, you’ve made no improvements to it whatsoever, but the area around your parcel has been attractively and successfully developed. What was once useless scrub is now considered highly desirable acreage, and with no effort on your part, your parcel is worth substantially more today than when you bought it. The difference is due to passive appreciation.
Now, here’s the critical factor in the Hamm divorce: Under Oklahoma law, only the amount of active appreciation of separate, premarital assets is subject to division in divorce; the amount that passively appreciated is not.
Hamm started the company in 1967, but its most significant growth occurred after his 1988 marriage to Sue Ann. Was that growth due to active or passive appreciation? How much can be attributed to each?
In negotiating a settlement, and now, in pursuing an appeal, it is obviously in Hamm’s best interest to argue that (as difficult as it is to imagine) the tremendous success of Continental Resources has actually mostly been due to third party influence, the whims of a fickle commodities market, and/or basic good luck. He appears to believe that happenstance played a great role, but his leadership did not.
From Ms. Arnall’s perspective, Continental’s soaring success should be attributed to her ex’s personal skills and efforts – and also to hers, as the company grew significantly during her time as an attorney there. The enhanced value of Continental shares represents wealth that the couple built together through hard work and partnership.
The truth, of course, lies somewhere in between. It doesn’t pass the common sense test to assert that a company’s success has nothing to do with the business prowess of its founder. (There are other oil companies that operated under the same fickle market conditions as Continental, but with different leadership, didn’t fare nearly as well.) Similarly, it’s unreasonable to maintain that outside influences held no sway at all.
Each side can be expected to pursue their argument vigorously. The case is reportedly expected to be heard by the Oklahoma Supreme Court, and we’ll stay tuned for their decision.
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Reminder: The Hamm case shows that the matter of active vs. passive appreciation can be a pivotal question in determining the fair and equitable distribution of marital assets – and that sometimes, there are huge sums at stake.
Hot tip: If you work for your husband’s company (or if he works for yours), keep excellent records about your specific job duties and how the company benefits from your efforts. You may not need to prove the case before a court, but documentation can make all the difference in settlement negotiations.
Legal matters: Even if your settlement isn’t going to make you a billionaire, it pays to understand the basic legal principles behind division of assets in divorce. The Hamm case shows some of how it’s done in Oklahoma. Make sure you know how things work where you live.
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Jeffrey A. Landers, CDFA™, is the author of the Amazon best-selling books, Divorce: Think Financially, Not Emotionally® –What Women Need To Know About Securing Their Financial Future Before, During, And After Divorce, Volumes I and II and Think Financially, Not Emotionally® −A Woman’s Guide To Financial Security After Divorce (to be published Fall 2015).
He is also the founder of Bedrock Divorce Advisors, LLC, a divorce financial advisory firm that works exclusively with women throughout the United States, and the creator of ThinkFinancially.com, a website created to educate, empower, and support women before, during, and after divorce.
Landers writes “Divorce Dollars and Sense,” a weekly blog for Forbes.com about the financial aspects of divorce for women, and he contributes articles regularly to The Huffington Post, DailyWorth, More.com, Lawyers.com, and many other publications.
