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Would living in Texas have been better for Mr. Hamm in his Oklahoma divorce?

The Harold Hamm divorce in Oklahoma is getting a lot of media attention right now. The divorce trial has started and the wife is making allegations that the husband’s company is rewriting history to downplay his role in the company’s success in order to increase the value of the marital estate subject to division. The trial has been closed to the media and interested onlookers and the lawyers have been placed under a gag order to prevent them from leaking interesting tidbits to the media, so we won’t know exactly what’s going on for a while.

Hamm divorce

Mr. Hamm founded Continental Resources in 1967, about 21 years before the marriage. He now owns 68% of the company’s shares and amassed a $19 billion fortune during the marriage. When Mr. Hamm divorced his previous wife, a year before marrying the current Mrs. Hamm, court filings estimated his net worth to be around $16 million. Under Oklahoma law, the growth in the parties’ net worth deriving from their work efforts during the marriage is considered marital wealth, subject to equitable division under Oklahoma law. So, how much each spouse gets in the division of property depends on the value the judge places on Mr. Hamm’s work during the marriage.

The allegation is that the company has been secretly altering its website and other public information to make it appear that market factors had more to do with the company’s success during the Hamm marriage than Mr. Hamm’s direct efforts. Oklahoma law apparently will make a distinction between Mr. Hamm’s efforts that increased the value of the company, which would be attributable to marital property. On the other hand, if the increase in value of the company was based on market factors outside of Mr. Hamm’s efforts (“luck”), then the increased value would not be marital property. So, Mr. Hamm has incentive to downplay his role, while the wife benefits from extolling his virtues.

Reporters were able to obtain the company’s corporate website from internet cache and discover revisions to the website such as a change that backdated a very profitable decision to move the focus from natural gas to oil to before the date of the Hamm marriage. Another change added a date before the Hamm marriage of the company moving into a basin in North Dakota. The company apparently changed the company’s 2013 annual proxy which originally stated that Mr. Hamm grew the company through his leadership skills and business judgment. The document produced struck the language extolling Mr. Hamm’s contributions.

Texas Divorce Law

Texas divorce laws would approach the Hamm divorce very differently than Oklahoma divorce law. As a community property state, Texas would look at the moment when the asset was obtained by the spouse to determine if the asset is community property and divisible upon divorce, or separate property of the husband and not divisible. So, in the Hamm situation, if all of the shares of stock were purchased and owned prior to the marriage, Texas law would consider the stock husband’s separate property, not subject to division upon divorce.

The next step in the analysis of the Hamm situation under Texas law would be to evaluate the characterization of the increased value of the stock. Unlike Oklahoma law, Texas would treat the increase in value of the stock, regardless of the efforts of Mr. Hamm in causing the increase, as separate property, the same as the stock itself.

Under Texas law, Mrs. Hamm might have a claim for reimbursement to the community estate under the case of Jensen v. Jensen. This Jensen claim would seek reimbursement to the community estate for the time, toil, and talent expended by one spouse to benefit his separate estate without the community estate receiving a proper benefit. So in the Hamm situation, under Texas law, the question would be whether Mr. Hamm received an appropriate salary (which would be community property) for his efforts in working for the company that caused the increase in the stock value. If he did receive an appropriate compensation, then the wife would not have a Jensen claim. However, if he was under- compensated or received no compensation for his efforts on behalf of his separate property company, then the community could make a claim to the increase in value of the separate property stock. The value of such claim would be limited by the reasonable compensation he should have received.

Needless to say, under Texas law, the Hamm divorce would look very differently than it does under Oklahoma law.