Remember, there's always someone worse off than you (or me)..

By Katya Kazakina

Aug. 5 (Bloomberg) -- Celebrity photographer Annie Leibovitz may be better off declaring bankruptcy than battling a creditor suing her for breaching a contract related to a $24 million loan, bankruptcy experts said.

Art Capital Group, a New York-based company that makes loans using art as collateral, extended Leibovitz $22 million in September 2008 backed by the rights to her photographs and real estate in Manhattan and Rhinebeck, New York, court papers said. Three months later, she got $2 million more, according to a suit filed last week in New York State Supreme Court in Manhattan.

The financing company sued Leibovitz, alleging she refused to cooperate in the sale of the copyrights to her photographs and won’t give real-estate agents access to her properties for sale. Leibovitz has to repay the loan with interest and other expenses by Sept. 8, according to the suit.

While losing the case may result in Leibovitz’s financial ruin, a bankruptcy court filing “may be more attuned to fairness issues with regard to her and to all her creditors,” said Thomas Kline, a partner at the Washington office of Andrews Kurth LLP who specializes in art law and litigation. Although bankruptcy would make public Leibovitz’s finances, Kline said, it would place them under the protection of a federal judge.

Considering Options

Filing for bankruptcy “will automatically postpone all litigation against her” while she considers her options, said Kline, who isn’t involved in the case. Such a move would help her “get a handle on her affairs.”

Matthew Hiltzik, a spokesman for Leibovitz, declined to comment. Starr & Co., listed in the complaint as Leibovitz’s financial adviser, didn’t return calls seeking comment.

Leibovitz, 59, is the creator of famous photographs, including a nude of John Lennon in a fetal position with Yoko Ono, and a portrait of a pregnant, naked Demi Moore published on the cover of Vanity Fair magazine.

The photographer was in a “dire financial condition” arising from tax liens, mortgages and unpaid bills, according to the complaint by Art Capital.

An agreement Leibovitz signed with the company makes the firm an “irrevocable, exclusive agent” for the sale of her works and property for the loan’s length and for two years after she pays it off, according to the complaint.

“She went to the lender of last resort,” said Asher Edelman, an art dealer who recently started an art-financing company, Art Assure Ltd.

Cash Flow

“People go to them in desperation” because there aren’t many places that lend against art, he said. “The big banks lend to their clients against cash flow. You need an access cash flow of about $4 million to support a $24 million loan.”

Art Capital’s spokesman, Montieth Illingworth, said that “Art Capital was uniquely qualified to do this financial restructuring and to maximize the value of her estate in order for her to pay the loan and realize the significant gain beyond that amount to stabilize her financial life.”

In 2007 and 2008, Leibovitz was late in paying $1.8 million in federal taxes, according to liens filed with New York City’s Finance Department.

Renovations of Leibovitz’s two buildings on Greenwich Street in Manhattan’s West Village were also mired in litigation and opposition by the Greenwich Village Society for Historic Preservation, according to its director.

The group complained of dangerous and illegal work on the landmark properties, built in the 1830s.

“Progress on the repair work was painfully slow,” said Andrew Berman, the group’s executive director.

Managing Finances

A neighbor of Leibovitz filed a $15 million lawsuit against her, claiming workers damaged a common wall between their two properties, forcing its owners to evacuate. Leibovitz settled the case by purchasing the neighbor’s property for $1.9 million in 2003, Berman said.

Creative people often have difficulties managing their finances, said Brad Klontz, a financial psychologist and author of “Mind over Money: Overcoming the Money Disorders That Threaten Our Financial Health” to be published in December by Broadway Business Books, an imprint of Crown Publishing.

“People who have become successful based on their creativity versus attention to detail may neglect financial planning, coming up with the budget, tracking expenses,” he said.

The photographer’s success may have also contributed to her financial problems, Klontz added.

Always Enough

“Highly successful individuals are more susceptible to a belief that there will always be enough money,” he said. “They are willing to take exceptional risks and believe that everything will work out.”

Leibovitz’s financial situation is unrelated to the estate of her longtime partner, Susan Sontag. The writer, who died on Dec. 28, 2004, didn’t leave an inheritance or property to Leibovitz that required her to pay taxes, according to Sontag’s will, filed in probate in New York.

Sontag, whose estate was valued between $500,000 and $3 million, left “from one to a maximum of four items” of personal property to Leibovitz, according to the will.

Personal Issues

Additionally, personal issues may have increased Leibovitz’s debt load. Eight years ago, Leibovitz gave birth to her first child, Sarah. She also has twins, Susan and Samuelle, who were born to a surrogate in 2005, according to a biography of Leibovitz on PBS’s Web site for its American Masters program.

The entire surrogacy process, including medical procedures, insurance and legal fees, can total $100,000 to $125,000, according to Sanford Benardo, president of the Northeast Assisted Fertility Group, a surrogacy and egg-donation program. A surrogate mother’s fee of $25,000 to $30,000 is part of that sum, he said.

Prices for an egg donor cycle that includes in vitro fertilization range from $20,000 to $30,000, said Barbara Collura, executive director of Resolve, the national infertility association.

Whatever legal strategy the photographer chooses to address the Art Capital lawsuit will be costly, Kline said.

“She doesn’t have a free way home,” he said.

The case is Art Capital Group Inc. v. Leibovitz, 09-602334, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Katya Kazakina in New York at kkazakina@bloomberg.net.

Last Updated: August 5, 2009 11:28 EDT

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