Nov. 10 (Bloomberg) -- Udo Fritz-Hermann Brandhorst, an heir to Germany’s Henkel AG & Co. fortune and a major art collector, avoided a public court case in New York by settling a lawsuit filed by his former mistress involving two Damien Hirst sculptures and a custody dispute.

The settlement was reached Sunday night according to the woman, Venetia Kapernekas, and Brandhorst’s lawyers.

Kapernekas, a 49-year-old New York art dealer filed a suit in federal court in Manhattan claiming an interest in the two Hirsts, which have been valued at an estimated $47.6 million, court documents show. The custody suit, involving their 8-year- old daughter, was being heard in New York County Family Court.

Kapernekas has agreed to drop the federal suit and claims on the Hirsts in exchange for: custody of their daughter (Brandhorst gets visitation and vacation rights); a one-time payment of $100,000; a $500,000 trust for the daughter’s education; a loft on Wooster Street in Manhattan’s Soho district valued at about $5 million to be held in the daughter’s name as sole owner; $5,000 a month in child support; and $640,000 to cover Kapernekas’s legal expenses, according to Kapernekas.

As part of her settlement, Kapernekas is able to sell a Warhol she received as a gift from Brandhorst, a heart-shaped blue-and-red painting from 1983 titled “Candy Box Open.” She had consigned the painting for sale for as much as $40,000 at Sotheby’s in London in February, along with another Warhol painting, titled “Heart,” which Brandhorst had given his daughter. Brandhorst’s lawyers blocked the sale and the works were withdrawn from the auction just before the preview began. Kapernekas cannot sell “Heart” because it belongs to her daughter.

Brandhorst’s lawyers would not confirm the terms of the settlement agreement.

Interest in Hirsts

Kapernekas claimed she had an interest in the Hirsts, according to court papers, because in 2002 she wired $825,416.83 to a New York art dealer “to permit Brandhorst to purchase contemporary art at the Gagosian Gallery as an investment for Kapernekas.”

Brandhorst paid $3 million for two Hirsts, including a 2002 20-foot-long pill cabinet titled “In this terrible moment we are victims clinging helplessly to an environment that refuses to acknowledge the soul.” Victor Wiener, an appraiser hired by Kapernekas’s lawyers, valued the piece at $35 million. Wiener valued the second Hirst, a 20-foot-tall painted bronze anatomical model titled “Hymn,” at $12.6 million.

Brandhorst said he had sole title to the Hirsts and he “never agreed to invest plaintiff’s funds,” and “never agreed to ‘safeguard’ art for plaintiff for any period of time,” according to court filings. Brandhorst’s lawyer, Benjamin E. Rosenberg of Dechert LLP, declined to comment.

‘Substitute Payments’

Brandhorst says that he asked Kapernekas to wire the funds to Gagosian to avoid tax penalties, according to court papers. He says he gave her “substitute payments” of $20,000 a month from September 2002 to March 2008, totaling $1.24 million. He paid credit-card bills from August 2002 to January 2007 tallying $457,898, plus private-school tuition, according to court records.

Brandhorst’s late wife, Anette Brandhorst, was the great- granddaughter of Henkel’s founder. She died of cancer in 1999. The couple began collecting art in 1971. He loaned a portion of his art collection to the state of Bavaria for the Museum Brandhorst, which opened in May. The collection comprises more than 800 artworks, including 100 Andy Warhols and 80 Cy Twomblys. Construction costs of $67 million were funded by Bavaria.

Brandhorst met Kapernekas in 1997 when they were seated together at an art dinner in Cologne, Germany.

Henkel, based in Dusseldorf, Germany, makes Loctite glues, Persil detergent and other consumer products. Last month it reported third-quarter earnings before interest and taxes of 385 million euros ($577 million) on sales of about 3.49 billion euros.

To contact the reporter on the story: Lindsay Pollock in New York at lindsaypollock@yahoo.com;

Last Updated: November 10, 2009 00:51 EST