For 13 years, Mr. De Niro and Ms. Hightower failed to account annually for their commingled separate and marital property when making investments or acquiring assets as required by their 2004 Prenuptial Agreement (PNA). In effect, the decisions in their 2018 divorce action have now interpreted this annual accounting requirement as an agreement to forever arbitrate and not litigate the marital and separate property issues of the divorce.
In his March 15, 2023 decision in Anonymous v. Anonymous, Supreme Court New York County Justice Ariel D. Chesler directed the parties to immediately provide to the parties’ chosen accountant those 13 years of disclosures . The accountant, and not the Court, would make the separate/marital property determinations. In doing so Justice Chesler applied the 2021 Appellate Division affirmance of a 2021 Order of now-retired Justice Matthew F. Cooper.
Justice Cooper, in his February 12, 2021 decision in Anonymous v. Anonymous, 70 Misc. 3d 1216(A), 139 N.Y.S.3d 522, embraced by a March 10, 2021 Order, considered the impact of the parties’ November 18, 2004, Prenuptial Agreement entered shortly before the parties’ second marriage to each other. The parties first married in 1997 and divorced in 2003.
As Justice Cooper noted, although the parties were granted “anonymous” filing status, the press was quick to ferret out the identity of the parties. The tabloids and other media outlets reported widely on the case. Although not named by Justice Cooper, the Plaintiff-husband was Robert De Niro and the Defendant-wife was Grace Hightower. See, for example Page Six and Fox News.
It was not disputed that under the PNA, the parties would sell their now $20 million marital residence, with the net proceeds evenly split. It was also agreed that the husband would buy his wife a new residence of her choosing valued at $6 million. Spousal maintenance of $1 million annually (less the wife’s “Assumed Income” as defined) would be paid until the earlier of the wife’s remarriage or either party’s death.
What was disputed, however, was how the provisions of the PNA concerning separate and marital property were to be understood, computed and applied. That Agreement, at its Article Four, defined “separate property” to include, among other things, the parties’ pre- (second) marital property including specified deals in progress; “the income, rents and proceeds derived from or accrued upon such party’s Separate Property; the enhancement and appreciation in value of such party’s Separate Property”; and “the business, career, profession, employment, earning capacity or celebrity status of such party.” Separate property also specifically included “interests in any business enterprise; interests in the right or potential right to receive royalties, income and profits from any artistic or creative work.”
Mr. De Niro maintained that “every asset I own, every business interest I acquire, every dollar of income that I earn from my career or businesses, and anything I acquire or invest in using that income, whether before or after the marriage, is my separate property.” Ms. Hightower claimed that all income and assets acquired during the marriage are, in fact, marital property. Judge Cooper held, “To summarize, a plain reading, as difficult as that may be, of Articles Four and Five of the PNA, . . . establishes that the overwhelming majority of plaintiff’s business and artistic assets constitute his separate property, whether having been brought by him to the marriage or having increased in scope and value during the marriage. Such a reading also establishes that the bulk of plaintiff’s income earned during the marriage, whether from acting, film production, or business ventures, constitutes his separate property as well.”
Under Article Five, “marital property” was defined to be property not defined as separate property. What is more, if separate property was used to purchase marital property, that separate property contributed would remain separate property and the remaining equity would be divided equally. Articles Five and Six evinced “the parties’ clear desire to opt out of the general rule that ‘commingling of premarital assets with marital assets creates a presumption that the separate property has become marital property.’”
Article Six required the parties, on an annual basis, to cooperate with their “designated accountant” who would trace and accurately account for commingled assets and “determine what, if any, property is marital and subject to equitable distribution.” The parties never complied.
The wife argued that 13 years of noncompliance should result in the husband’s waiver of allocating any portion of commingled property to his separate property, or in the alternative, that the provision should be enforced. The Husband argued that “Article Six is moot because, aside from the marital residence, he never invested separate property into marital property, or vice versa.” Justice Cooper noted that the PNA, itself, provided the annual accounting was not a condition to preserving separate property claims. The Court rejected the wife’s efforts to sever and invalidate Article Six.
Justice Cooper held that Article Six must be enforced. A neutral accountant must review the 13 years of transactions. “Notwithstanding any difficulty in producing the required records, some being as much as 15 years old or more, the burden falls on the party seeking a separate property credit, as it relates to business ventures and/or property acquisitions made during the marriage, to adequately document to the designated accountant a basis for same.”
However, other than each party’s production of records for the designated accountant (and available to the other party), there was to be no litigation discovery concerning separate property. “The PNA must be read as a waiver to such discovery contingent on the parties complying with Article Six.”
Justice Cooper’s ruling was affirmed by the Appellate Division, First Department, Anonymous v. Anonymous, 198 A.D.3d 526, 152 N.Y.S.3d 806 (2021). The appellate court noted, “Accordingly, the husband’s income earned during the marriage and other business assets acquired during that time are his separate property and not subject to discovery.”
On this pre-judgment motion to Justice Chesler, Ms. Hightower sought an order compelling Mr. De Niro to produce all of the required records to the Designated Accountant, as well as for a total of $1,013,070 in current and prospective counsel fees and $150,000 in prospective accounting fees.
By his Order of March 15, 2023, Justice Chesler held that “the First Department’s affirmance of the March 10, 2021 order means that the parties must comply with the directive to retain a Designated Accountant, and must provide all the necessary disclosures to such accountant in lieu of the discovery exchange the parties would have engaged in had they not contracted for this alternate procedure.” Mr. De Niro argued that the First Department found that his “income earned during the marriage and other business assets acquired during that time are his separate property and not subject to discovery;” . . . that since all income earned during the marriage was Plaintiff’s separate income, no marital property, and thus no marital income, was created, thus, the ratio determinations are not necessary to be conducted.”
Justice Chesler noted that had that been the First Department’s position, it would have reversed or modified Justice Cooper’s order to provide the documentation to the designated accountant. Justice Cooper had rejected the husband’s claim that there was no commingling of separate and marital property. Rather, that determination is for the designated accountant to make, not a party. It is Mr. De Niro’s “burden to prove to the Designated Accountant that all of the assets in question are his separate property.” Justice Chesler directed the parties to immediately provide disclosures to the agreed-upon designated accountant.
Justice Chesler also awarded the wife $600,000.00 for past and prospective counsel fees (Mr. De Niro has already paid his wife’s counsel more than $800,000). The Court rejected Ms. Hightower’s request for additional expert fees (Mr. De Niro had already paid $95,000). There was no basis to make Mr. De Niro responsible for Ms. Hightower’s efforts to review the work of the designated accountant.
Comment: What are the practical effects of the parties’ failure to do the annual accounting? To begin, Justice Chesler appears to have placed the burden on Mr. De Niro to prove his separate property. The apparent presumption that under the agreement investments would be deemed marital unless they were proven to be separate may be a function of the PNA’s definition of “marital property” as property “that is not Separate Property.”
What will be the impact of the absence of records to disclose to the accountant all investments made and income received, including the source. If the documentation as to the purchase of every item of property, of every investment, is not available, does the designated accountant have the authority to conclude in bulk that all of Mr. De Niro’s income was separate and therefore anything purchased had to have been separate (except to the extent of Ms. Hightower’s contributions). Mr. De Niro argued such to the Court, asking for summary judgment. However, that relief had been denied; such was to be determined by the accountant.
Here, the PNA provided that the accountant was to do this each year. Both parties failed to call for that. Did the agreement provide that the annual accounting could be made 17 years late?
The point remains, as Justice Cooper noted, that the parties came into their second marriage to each other “with eyes wide open as to its high potential for failure.” Had they complied with the annual accounting, even just the first year, the issues to be arbitrated (or litigated) now more than 17 years later, and the needed documentation could have been flushed out.
As is often the case, it is easy to “Monday morning quarterback.” It is easy to say that the agreement should have answered “what if?” and then “what if?” and then “what if?”. Justice Cooper noted that the agreement had been drafted by a Big Law firm who may not have been as experienced in anticipating what could happen as matrimonial counsel.
Matrimonial lawyers also may have been better able to assist the parties in setting up or maintaining accounts needed to anticipate the annual accounting and to make sure that the documentation needed would be forever preserved.