Divorcing CEO of Money Managing Firm Claims Insolvency

The CEO of Highland Capital Management LP told a divorce judge in Dallas March 28 that losses in the financial crisis of 2008 brought his firm “to a state of insolvency.”

“The last three, four years have been negative to the tune of hundreds of millions of dollars,” James Dondero told state court Judge David Lopez. Dondero said he earns “a million, two,” annually.

A lawyer for his wife Becky told the court that his 2010 tax return indicated his adjusted gross income exceeded $36 million.

Moody’s Investors Service said Highland is the largest manager of collateralized loan obligations based upon dollar amount. In 2008, investors and banks sued the money management firm when it had to suspend their withdrawals from two hedge funds because of the credit crisis.

During a break in the hearing, Dondero told an interviewer that when calculating his net worth, he took into account contingent liabilities like pending litigation.

“In family court,” he said, “Goldman Sachs and JP Morgan would be insolvent because of all the litigation they’re involved in. We’re involved in a lot of lawsuits as well.”

Dondero explained that family court differs in their application of generally accepted accounting principles (GAAP) from other types of courts when considering business assets. According to the GAAP businesses use he and his company are in the black.

Becky Dondero is asking that their prenuptial agreement be enforced. The agreement guarantees her half of community property up to $5 million. She testified that her husband owes her $104,000 under the agreement. She is asking the judge to rule that James Dondero pay her $20,000 a month in spousal support as well as pending attorney’s costs.

Lawyers for Becky Dondero called to the stand a former Highland employee who testified that James Dondero “told me his plan was to get his net worth down and pay her as little as possible.”

James Dondero said he filed for divorce in September when the couple had been married for six years.  Dondero and his wife Becky have 3- and 6-year-old daughters.

Source: Bloomberg

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