The Fall of a Billionaire’s Wife

 

 

By Robert Frank 

When media billionaire John Kluge and his wife Patricia divorced in 1990, she walked away with a settlement reported to be more than $1 billion.

Now, her 45-room Virginia estate has been sold off after foreclosure and her prized vineyard and luxury-real estate development have been seized by creditors. She has even sold off jewelry and antiques.

According to an article in The Washington Post, Ms. Kluge and her husband have “decamped to a $3 million spec home” behind their failed development.
So how does someone go from billionaire to debtor?
According to the Post piece, it was a combination of a “tanking economy, an ill- timed expansion and other bad business decisions.” I would add a fourth factor that was probably the most important: debt.

Ms. Kluge owed more than $60 million in loans to various banks and lenders. Among them:
A reported $34 million from the Farm Credit of the Virginias for the 960-acre Kluge Estate Winery Vineyard. The bank is now operating the winery and plans to sell it at an auction scheduled for April 9.
Ms. Kluge owed $23.9 million in unpaid principal and interest on a a loan Bank of America against her mansion, Albermarle House.

An $8.5 million loan from Southern National Bancorp of Virginia Inc. on a 22-lot development property called Vineyard Estates.

Of course, $60 million in loans may have been manageable as long as they were covered by the value of her assets. Yet Albermarle House, which first went on the market in 2009 for $100 million, was bought by Bank of America for $15.3 million.

The Vineyard was selling only half of its production and the luxury real-estate development ran smack into the housing bust.

The lesson: No matter how rich you might be, or how much you think your assets are worth, you are only as smart as your debt. It is a lesson even billionaires can easily forget.