Last week an Oklahoma Judge ordered Continental Resources CEO Harold Hamm to pay his ex-wife almost $1 billion in cash and assets to divide their marital estate. Mr. Hamm’s current estimated worth is $13.3 billion despite that fortune losing almost $5 billion in value during the 9 ½ week trial due to declines in stock value that largely make up the CEO’s fortune. The $1 billion judgment is one of, if the not the largest in United States history, but the recipient, Sue Ann Hamm, plans to appeal the decision because she contends her award should have been larger.
Ms. Hamm’s argument that she should receive more than $1 billion centers on the Judge’s determination as to what portion of Mr. Hamm’s wealth should have been considered marital property. When the couple was married 26 years ago, Continental Resources was worth less than $50 million and both parties agreed that Mr. Hamm’s business interests and stock are his separate property. By the time they split, the company’s value had risen to $20 billion—a 400-fold increase in value.
Under Oklahoma law, Ms. Hamm had to show the dramatic increase in wealth of Mr. Hamm’s separate property was actively made during the marriage to be entitled to a portion of that wealth. In his 80-page decision, the Judge determined that all but $1.4 billion of the increase in value was due to passive appreciation. In other words, the Judge found that only $1.4 billion in value was due to Mr. Hamm’s work as CEO (active appreciation) and that over $18 billion in value was attributable to market forces such as the price of oil (passive appreciation). This determination was made after Mr. Hamm made a quite unusual argument as a businessman: He claimed his fortune was amassed largely due to dumb luck, not his own business savvy.
The Oklahoma Court ruling on active and passive appreciation of separate property is similar to that facing North Carolina Courts in an Equitable Distribution case. When a husband or wife brings separate property into a marriage in North Carolina that property generally continues to be considered separate. Any gains in value of the separate property will be considered separate so long as they are considered passive gains, such as the market forces on stock price as cited by the Oklahoma Court. Gains to separate property due to active appreciation, such as Mr. Hamm’s work as CEO to develop and grow his business, can be classified as marital property subject to division in a North Carolina Equitable Distribution case. In the case of substantial growth of a separate asset, the North Carolina Court has great latitude to determine how much of any increase in value is due to active or passive appreciation.