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Ex-wives need derivative contracts of their own

Ex-wives need derivative contracts of their own
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First Published: Thu, Apr 09 2009. 12 43 AM IST

Updated: Thu, Apr 09 2009. 12 43 AM IST
Brian Myerson isn’t the first wealthy man to attempt to slash payments to an ex-wife. He won’t be the last. As the recession bites, more business tycoons who once traded in their trophy wives the way other men upgrade their cars will apply for post-marital refunds.
Nobody could say the past few weeks were good for Myerson. First he was ousted as chief executive officer of Principle Capital Investment Trust Plc., the investment vehicle he used to lead. Then a UK court rejected his application to reduce the amount he had to pay his former wife after his net worth plummeted during the credit crunch.
The moralists will have a field day. They’ll cry that Myerson and other financiers in the same boat are evading responsibility. They will crow they are simply looking for another bailout, much as they did when the banks went bust.
But even when those points are conceded, it is hard not to see that there is a basic unfairness for the man.
There is a simple solution: Divorce settlements could come with a derivatives contract tied in, so that the fortunes of both former partners could move in tandem. It would be a lot simpler. And it would give the idle math geniuses at investment banks something to do now that nobody wants to buy contracts filled with useless equations.
Two recent cases come to mind. In February, Steven Simkin sued his ex-wife over the share of money invested with Bernard Madoff, who defrauded clients in a $65 billion (Rs3.3 trillion) Ponzi scheme. Simkin, a lawyer, had paid her $2.7 million based on $5.4 million invested with Madoff. With the investment gone, he wanted the money back from his ex-wife. The Myerson case was more blunt. Last year, the activist investor, a high-profile figure in the London markets, agreed to pay his former wife, Ingrid, £11.2 million (Rs83 crore) as part of a lump-sum divorce settlement. (The British courts routinely divide assets equally between couples splitting up.) Unfortunately, life minus Ingrid turned out to be not as simple or peaceful as he might have imagined. Amid the carnage in the markets, the value of Myerson’s assets plunged. By the year-end his share of the settlement was worth £1.17 million. We don’t know what Ingrid did with the money she received. Assuming she didn’t put the whole lot into Royal Bank of Scotland Group Plc. shares or an Icelandic bank, chances are she will be richer than her former husband.
We can all see the logic. The courts don’t force anyone to keep their wealth tied up with Madoff, or to hold it in their own investment firm. Either man could have sold, diversified or found some other way of protecting his wealth. And it isn’t hard to look at this as yet another plea for a bailout, something the public has had quite enough of. Still, you would need a heart of stone not to feel some sympathy. You spend your life building a fortune, and at the end you lose most of it. If the end result of the credit crunch is that the bankers wind up broke while their wives swan off to Monaco to skip taxes and work on their tans, it won’t strike anyone as just. A derivatives contract in banking spouses would be simple. Just feed all the statistics—age, beauty, faithfulness, connections to people called Rothschild and so on—into the computer and it will spit out a discounted current value. Every divorce settlement could come with a built-in contract. If the husband post-divorce went on to make another mint by predicting the next great oil price spike, then the wives would collect a share from the increase in his value. If she managed to land a Russian oligarch as her next spouse, then the former husband would be a bit better off.
You could even repackage bundles of ex-wives and ex-husbands into derivatives of derivatives and sell them on an exchange with an AAA credit rating. There might be a small Japanese pension fund unworldly enough to buy into that.
Of course, the contracts might well blow up as spectacularly as all the subprime ones did. Still, at least they wouldn’t do nearly as much damage.
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First Published: Thu, Apr 09 2009. 12 43 AM IST