Art – the difficult question of ownership upon death or relationship breakdown

Posted: 10/10/2024

October is a special month for art lovers and collectors alike in London. Frieze London and Frieze Masters take over Regents Park and bring with them a multitude of pop-up exhibitions and auctions across the city.

In October 2022, the combined evening sales of Christies, Sotheby’s and Phillips totalled nearly £160 million, showing Frieze Week is undeniably a time for new purchases. Art often has pride of place in the family home and becomes sentimental to owners and their families alike. While huge emotional value is often tied to these pieces, they can come with a similarly large price tag, one which has the potential to grow exponentially over the years to become, outside of property and conventional investments, a family’s most valuable asset.

This value, both in financial and emotional significance, can lead to complexities upon a relationship breakdown. Artwork may be the product of one party’s (or indeed their family’s) lifetime of collection which they feel strongly about keeping intact for future generations. The sentimental nature of art could mean that a party places a value on it far higher than any financial one, leading to difficulties in quantifying the value of the asset and disputes about sale or retention. Similar complexities often arise in estate administrations and can lead to post-death disputes regarding the value of the artwork, or indeed its ‘rightful’ recipient.

Handling artwork upon the death of a loved one

Given the emotional and financial significance of artwork, families can become embroiled in post-death disputes regarding who is to receive the collection, or specific works. Should an owner wish to pass artwork onto future generations, or specific individuals, they should take care to ensure their wills are clearly drafted, ideally so that the artworks in question (and the recipient to whom it is passing) can be clearly identified, and their wishes for the future of that artwork clearly communicated (eg do you want it to be kept privately, displayed or sold?). This can mitigate against any disputes as to how the artwork or collection is to be dealt with after death.

Parties should also ensure that whoever they appoint to manage the passing down of their artworks post-death (an executor) is capable of administering the assets. Having a competent and trustworthy executor (a professional or independent person, for example), might save the estate from legal disputes and/or litigation. One hurdle an executor often faces is locating and collecting these assets, which does not always prove easy. Sometimes, items cannot be located or the party in possession is dishonest about holding the item(s), or reluctant to relinquish control altogether, whether that be a particularly attached family member, or an art gallery with overly stringent loan agreements. Executors must also secure and protect the artwork, including obtaining adequate insurance in case disaster happens, or risk facing personal liability for any loss.

Executors must also organise for the property to be valued and can often be faced with valuation difficulties or disputes between the beneficiaries. For example, sale agreements or certificates of authenticity may be missing. Signatures can also be disputed.  Beneficiaries may want to keep the artwork in lieu of another interest, or accepting a lesser interest they may have in the estate. That beneficiary may lie about the condition, and the rarity of the work. They may well present valuations that are lower than another beneficiary considers to be accurate, leading to disputes as to the division of the estate. There are also occasions when disputes over valuations arise between beneficiaries and executors, should the executors sell the artworks at an undervalue. The dispute surrounding the artworks in Mark Rothko’s estate is an example that reached headlines.

Who does art belong to after a relationship breakdown?

From a family law perspective, assessing what is in the art collection is an important first step during disclosure. This may be more difficult for one party who is the ‘non-collector’ and where art is stored rather than hanging in homes. Detailed catalogues or inventories should be requested at the earliest possible opportunity, not least so parties can begin to think about the practical arrangements of any sale or transfer, especially if this involves transportation internationally.

Evidence of ownership is an issue which can crop up where receipts and documentation has been lost and also needs to be thought about at this juncture. Keeping proper paperwork and up to date insurance schedules can assist with this. The disclosure stage is where it may also become apparent whether the art is situated within any trusts or company structures. Although these are more often used as legitimate vehicles, the high profile divorce of Dmitry Rybolovlev highlights the use of company structures to conceal valuable artworks (later the subject of headlines in a major fraud).

Once the collection or piece(s) has been ascertained during disclosure, the provenance of the art to the relationship needs to be considered. In England and Wales, the sharing principle (namely that matrimonial assets should be split equally) is the starting point for financial awards. Put simply, art that is collected throughout the marriage, in most cases, will be subject to equal division. For a collection, especially one that has higher value kept together, equal division could be an undesirable outcome. Where a party wishes to retain the art, it would then be important to think about what else is available and whether a situation could arise which allows offsetting, whereby one party retains the art (or indeed the entire collection) and the other receives the financial value for it from other assets in the matrimonial pot.

The situation may differ for artworks brought into the marriage (eg inherited family artwork or collections). Generally speaking, these assets are ringfenced and may be retained by the party who brought them into the marriage, provided that the matrimonial pot is sufficient to meet the needs of the parties and any children. Of course, a nuptial agreement could help record parties’ (and wider family) wishes for assets, including art, in the event of a divorce. Generally, such agreements are upheld by the English courts subject to the parties’ needs being met and that they understood the terms and implications of the agreement, giving families a degree of certainty. It is important to remember, save for any amendments to a nuptial agreement, that art collected during the marriage will likely not be included in the nuptial agreement and then will be subject to the sharing principle above.

Seeking a valuation  

Naturally, whether the art is sold or retained, valuation is crucial. Unique factors such as reputation, ownership history and demand (which can fluctuate) can affect the valuation of art unlike other assets. Expert evidence is likely to be obtained, an exercise which should be carefully considered by legal advisors. The valuations of pieces of art can vary enormously depending on expert and valuation method. For rare pieces, where there are limited comparable artwork sales, much can turn on valuation method (a US case involving an extensive $700 million art collection, Macklowe and Macklowe, highlights the difficulties in valuation that experts can encounter – there was over $150 million difference between the two experts’ valuation of the collection). It is important that your legal advisor can assist you in finding a suitable expert and that the letter of instruction is carefully drafted to ensure no disputes in the valuation letter appear later down the line.

If disputes arise when valuing or distributing artworks, recourse to arbitration on that particular point can be a valuable tool to allow parties to quickly resolve issues. Arbitration has the benefit of being quick and allowing the parties to choose a suitably art-experienced arbitrator to preside over the dispute. An arbitration on a single point (eg the art) can happen while inside the court process (giving parties the benefit of still being subject to the court timetable) or early while in voluntary proceedings. Arbitration or mediation can be similarly useful in post-death disputes, as can the appointment of a single joint independent valuer.

Tax implications

The sale or transfer of art can have large tax implications for separating couples. Ensuring that your advisor can put you in touch with the right people to receive tax advice (and that this is factored into any settlement) is crucial, especially where multiple jurisdictions are involved. The timing in the divorce of any art sale can have significant consequences in England and Wales for CGT liability and these considerations need to be carefully planned.  

Beyond what art is distributed or sold, it is also important for parties to have in mind the practical consequences of art ownership moving forward. For instance, the ongoing costs of insurance and storage should be considered, alongside any requests to retain sentimental pieces - these sums can be vast and ongoing for a lifetime which may not suit the income position of the parties once separated.

Whether making purchases during Frieze Week or simply browsing the multitude of shows, galleries and exhibitions – Charles Gaines at Freize London, the Women in Art Fair at Mall Galleries, Catherine Loewe’s curated ‘Fabric of Life’ at Paul Smith’s new gallery space, and Van Gogh at the National Gallery being some top picks – we hope that our clients enjoy the richly creative atmosphere that this time brings to the city.

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