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Dondero case reveals high asset divorce complexities

Arizona is a community property state. On its face, that might suggest that settling issues related to property division and spousal maintenance in the event of a divorce should be a relatively simple matter of adding up income earned during the marriage and splitting it up equitably. But it's often not that easy, especially in cases of high asset divorce.

Just how complex situations can get is offered in a dispute over spousal maintenance in a case that's under way in another state. Despite the difference in laws and jurisdiction, the circumstances are such that we're sure it is of interest to family law attorneys in Arizona and the rest of the country.

At the center of the fray is James Dondero, CEO of Highland Capital Management LP. The company is listed by Moody's Investors Service as the largest manager of collateralized loan obligations in the country.

Dondero initiated divorce proceedings against his wife of six years back in September. They have two children, ages 3 and 6. She's seeking to enforce a prenuptial agreement that reportedly guarantees her half the couple's community property, up to a maximum of $5 million. She also claims that Dondero is behind on spousal support payments to the tune of $104,000. She also wants him to pay $20,000 a month in support and cover interim attorney fees.

Appearing in a Texas court last month, Dondero testified that under provisions of state family law, he is insolvent. He has no money to pay. At the same time, though, his company has issued statements that he and his company are both solvent and successful. How can both be possible? Dondero says it's all in the accounting. Under generally accepted accounting principles in business, his firm is solvent. But under family court rules, he isn't, because the money on the company books could be lost in pending lawsuits.

So, while Becky Dondero's attorney told the court that a 2010 tax return showed Dondero's adjusted gross income to be more than $36 million, he told the court that his current income is only about a million or two. And he said the lawsuits filed by investors and banks since the economic downturn leave him exposed.

At the end of the hearing, the judge adjourned without making a ruling. It's not clear when a decision will be forthcoming.

Source: Bloomberg Businessweek, "Highland Capital Chief Tells Divorce Judge He's Insolvent," Tom Korosec, March 29, 2012

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