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In calculating one of the largest-ever equitable distributions ordered in a New York divorce case, a Manhattan judge has ruled that reduction of marital assets to account for capital gains tax liability should be determined by historical analysis of tax payments rather than based on a hypothetical one-time sale. In Wechsler v. Wechsler, 350250/01, Manhattan Supreme Court Justice Judith Gische ruled that the parties, Norman and Sharon Wechsler, were each entitled to $47.6 million, half of a marital estate she set at $95.2 million. Though much larger estates have been divided, most such divisions have resulted from negotiated agreements rather than court orders. Mr. Wechsler, the owner of investment company Wechsler & Company Inc., and Ms. Wechsler, a onetime administrative assistant who later worked for her husband as an officer and director, were married in 1971. She filed for divorce in 2001. The main component of the marital estate was a portion of the securities held by WCI. Mr. Wechsler had argued that the value of the holdings should be lowered by $29.6 million. A court-appointed expert, Kurt Krobuth of CFC Capital, had calculated the $29.6 million reduction to offset capital gains taxes that would eventually have to be paid on the WCI holdings. Applying an effective tax rate of 41.7 percent, based on both federal and state rates, and basing calculations on the 2001 date the divorce began, CFC Capital concluded the marital estate’s portion of the WCI securities was worth $51.1 million. TAX RETURNS But Justice Gische called the $29.6 million figure a “whopping” reduction of the marital estate and said CFC’s approach was inappropriate because even the hypothetical sale and breakup of WCI would not immediately trigger capital gains liabilities on its underlying assets. “It is only when the underlying WCI assets are sold that gains are realized and taxes paid,” the judge wrote. “In the ordinary course of WCI’s business, securities are sold over periods of time and gains are realized and taxes paid.” The plaintiff’s expert, Gil Matthews of Sutter Securities, calculated capital gains reduction based on WCI’s historical trading patterns. His analysis stated that WCI paid a historical tax rate of 11 percent and the capital gains reduction should be correspondingly lower. Justice Gische said this analysis more accurately reflected economic reality. She further noted the likelihood that a buyer of WCI would undertake a similar analysis in determining an offer price. “Indeed that is why tax returns are an important component of a due diligence analysis prior to purchase,” she wrote. The judge applied a capital gains reduction of $7.8 million rather than $29.6 million, calculating the value of WCI to the marital estate at $74.4 million. After excluding from that amount around $5 million as Mr. Wechsler’s separate property, she reduced this value to $69.6 million. Other assets in the estate included personally held securities, a house in Bedford, a Manhattan apartment, a Colorado house, cash accounts, jewelry, artworks, cars and a wine collection. Ms. Wechsler received $27.3 million worth of these assets. Mr. Wechsler was awarded fewer liquid assets but given continued sole ownership of WCI. He will be required to pay Ms. Wechsler the balance of her distribution in payments equal to $1.3 million per year for the next 15 years. Ms. Wechsler was represented by Pamela Sloan of Herman Sloan Robarge & Sullivan. Mr. Wechsler was represented by Jay Silverstein of Blank Rome.

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