Divorce Settlement Lesson: Draft Carefully, Know Consequences

When a wealthy estate is at issue in a high-asset divorce, it pays — literally — to have a family law attorney with a deep well of experience in property division matters draft well-considered and carefully written divorce settlement documents.

It is certainly important, obviously, that a client also fully understand those documents and the potential ramifications that can arise if stated obligations are not met.

Take the case of Credit Suisse Group AG chief executive Brady Dougan, a wealthy man by virtually any measuring stick. In fact, Dougan’s estate was worth an estimated $80 million when he divorced his wife in 2005.

Pursuant to their dissolution, the couple executed a divorce settlement that called for Dougan to make a $7.5 million payment to his spouse in June 2006, with a penalty of 10 percent of that amount to be additionally owed in the event that Dougan was tardy on the payment.

He was, by 12 days. To make that up, he sent the $7.5 million, plus an additional $25,000 to cover interest for the days he was late.

She objected, but a state trial court in Connecticut ruled in favor of her husband. An appellate court reversed the decision, and the state’s Supreme Court waded in with finality last week, when it required Dougan to come up with $750,000 — the entire 10 percent interest it says he owed.

Dougan argued that the settlement clause calling for that much money was essentially a penalty that violated public policy and was thus unenforceable.

The Court disagreed, calling Dougan a “financially sophisticated” businessman who knew what he was agreeing with.

His former wife’s attorney says that the $750,000 is still not enough, arguing that Dougan should be required to pay 10 percent on the $750,000 he withheld for five years. The total amount owed, it is argued, is closer to $1.1 million.

That issue is expected to be litigated.

Related Resource: Associated Press, “Credit Suisse CEO owes ex $750K for late payment” June 27, 2011

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