adminLaura Overdeck, the wife of billionaire hedge fund manager John Overdeck, alleged in a lawsuit filed last week against the law firm of Seward & Kissel and one of its partners that they committed malpractice and fraud by not informing her that documents which moved marital assets to Wyoming trusts also ended her claim on those assets if either filed for divorce.
Laura filed for divorce from John in March 2022, 20 years after the couple’s marriage and 21 years after John cofounded $60 billion quant hedge fund Two Sigma in 2001 with David Siegel. The couple did not have a prenuptial agreement, and John Overdeck amassed the bulk of his estimated $7.3 billion fortune since they married, presumably setting Laura up for a hefty payout. But her lawsuit claims she found out soon thereafter that documents she signed in 2018 permitting transfers “exceeding several billion dollars” from trusts set up in New Jersey to new trusts housed in tax-friendly Wyoming came with unexpected consequences. The original New Jersey trusts had been set up to reduce federal estate and gift taxes and to benefit their three shared children and both partners. Legal news service Law360 first reported on the lawsuit last Friday.
The complaint filed in New Jersey Superior Court claims that Seward’s attorneys included provisions in the Wyoming trusts, without informing her, that would remove her as a beneficiary “upon either spouse commencing a legal proceeding seeking a divorce.” Instead, she claims all she was told was that “the trusts were being moved to Wyoming to shield them from certain taxes.”
In addition, she alleges that the Wyoming trust instruments give her husband “sole control” of determining how much their three children will inherit and leave the door open for him to distribute money earned during their marriage to children he may have separately in the future. The law firm Seward & Kissel and a spokesperson for John Overdeck at Two Sigma did not respond to requests for comment. The partner named in the suit is Hume R. Steyer, identified on Seward & Kissel website as co-head of its Private Clients/Trust and Estates Group.
“Laura Overdeck believed she was represented by Seward & Kissel,” Kevin Kilcullen, one of her attorneys, tells Forbes. “She now understands they acted directly against the interests of her and the children.”
This practice known as “trust decanting” has become a popular tactic used by the wealthy to shield assets from Uncle Sam, ex-spouses, other family members and creditors. It involves removing assets from a supposedly irrevocable trust and pouring them into a new trust with new or revised terms, usually in states with friendly tax laws and lax regulations around notifying beneficiaries. (Decanting is governed by state law and the modifications typically shouldn’t change the grantor’s original intent.)
“Wyoming, South Dakota and Delaware are the nation’s legal sewers,” says Jay Adkisson, an asset protection attorney who is not involved in the Overdeck case. “People go there when they’re trying to cheat somebody else.”
Las Vegas-based estate planning attorney Steve Oshins, also unaffiliated with the Overdecks’ dispute, says taking trusts to jurisdictions like Wyoming for state income tax avoidance reasons is common and cautions that he can’t jump to conclusions based on allegations that could be misleading or merely a negotiating tactic. But he adds that if Overdeck did expand the trusts’ purview to include his possible future children, it could create a legal issue.
“If that’s true, then that part of the decanting or the entire decanting could be voided by a court because when you decant, you can’t add additional beneficiaries,” says Oshins.
The stakes of the divorce negotiations are heightened by the fact that John Overdeck’s most important professional relationship is also on thin ice. The hedge fund’s annual filing with the Securities and Exchange Commission in March, as first reported by the Wall Street Journal, noted that its management committee, which includes only the two founders, has been “unable to reach agreement on a number of topics.”
Overdeck is a math genius who oversees the construction of Two Sigma’s research models, while Siegel is a computer science whiz supervising its back-end engineering. A 2015 Forbes story compared Overdeck to a chef, “approving the recipes and preparing the meals,” and Siegel to the restaurant manager ensuring that the ingredients and appliances are in place and functioning well. The Journal’s report on their feud this June said following that story, Overdeck brought a chef’s hat into a meeting with Siegel, angering his cofounder for days.
Shortly after the tension became public, according to another Wall Street Journal report, Siegel and Overdeck partially reassured investors in a letter, writing, “While we disagree about certain important topics, we also agree on many of the things that are most critical to our organization.” Still, any part of Overdeck’s ownership stake he would cede in a divorce settlement would appear to give Siegel an upper hand. His divorce lawyer Jonathan W. Wolfe told the Journal that he “has no intention of entering into any divorce settlement that would affect the firm’s business or his ownership.” Wolfe didn’t respond to a request for comment for this story.
While Two Sigma was growing into a hedge fund giant, the Overdecks retained Seward & Kissel in 2007 to begin their estate planning, drafting wills and creating trusts for their children. Laura Overdeck’s complaint says the law firm helped them set up a joint family office and their Overdeck Family Foundation, which has given more than $300 million primarily to advance education causes since it was founded in 2011. It adds that Seward helped her create her own nonprofit called Bedtime Math, which sells children’s books and offers programs aiming to make math fun for kids.
The complaint alleges that in 2013, when the couple discussed creating a postnuptial agreement (determining the distribution of assets should the marriage end), Seward partner Steyer wrote them an email explaining that he wouldn’t be able to represent either of them in that matter. Laura Overdeck assumed that was due to a conflict of interest, but the firm didn’t notify her of any such conflict when it presented her the trust documents to sign in 2018, which she now contends benefitted her husband to her detriment.
In addition to charging fraud and malpractice, Laura Overdeck alleges that Seward breached its fiduciary duty to her as a legal client by not notifying her of the drawbacks of the new trusts. But the complaint notes that the law firm claims it wasn’t representing her at all. When she discovered that she could be removed from the trusts after filing for divorce, the firm wrote her a letter in May 2022 saying that it hadn’t provided any legal services to her personally since 2010. This was news to her. Her complaint notes that she and John were paying the firm from joint bank accounts from 2015 through 2022, despite Seward’s assertion that it was only representing him.
Read the full article here
