Chris’ Coolest, Wonkiest Idea – Divorce as Chapter 11 Bankruptcy
The practice of divorce law is dominated by litigators. Even in the out-of-court divorce options like mediation and collaborative law, almost all the attorneys started as traditional family law litigators.
Outside of one large litigation case I did as a junior attorney at Latham & Watkins, I have never been a litigator. As a general counsel, I would never let outside counsel litigate – we always settled.
In my opinion and experience, litigation is often an enormous economic waste. While Rebecca is the snobbier of us two in general, I do love certain snobby economic and finance concepts like “rent seeking.” "Rent seeking” is trying to make money without creating real value, usually by manipulating rules, markets, or political systems. It’s extracting wealth rather than producing it. Maybe litigation was not always this way, but the current way it is practiced (particularly in the US) reeks of “rent seeking.”
The other issue with litigation, particularly in the non-corporate context where there are individual humans on each side, is that litigation ignores externalities (my main beef with the study of economics is that economists LOVE to ignore externalities like...climate change for instance). Sure, one spouse may “win” in a divorce, but in doing so they likely profoundly damage themselves, their ex-spouse, and their family and friends through the lengthy and contentious process that brought them “victory.”
I have almost no litigation experience, so why would anyone want to hire me to handle their divorce? Because thinking about divorce from a transactional or Chapter 11 bankruptcy restructuring lens makes more sense, particularly when there are children involved. The practice of divorce needs more transactional and/or corporate restructuring legal thinking.
A transactional approach acknowledges that the spouses must come to an agreement that governs their future interactions. And depending on the age of the kids and the involvement in the lives of the adult children that parents want, these future interactions will almost certainly last longer than their marital interactions. The ease or tension in those future interactions is an externality that the litigation process would completely ignore. No value is assigned.
I assure you that you’ll feel that value or the lack thereof attending your kid’s birthday party with your ex-spouse.
What about corporate bankruptcy restructuring (Chapter 11), which to me is actually the most analogous for divorce? Corporate bankruptcy restructuring acknowledges that the company being restructured has ongoing economic value, but something went wrong to bring it to bankruptcy (mismanagement, economic downturn, inappropriate capital structure creating unmanageable debt load).
Two of the first things that happen in a corporate bankruptcy restructuring are (i) the company secures new funding to keep the business going and (ii) additional oversight is placed over management. Both these moves are intended to protect underlying economic value while the company is restructured.
This is what Rebecca and my practice offers divorcing families. Immediate structure and stability to stop / minimize additional damage from the divorce conflict / process. But also to keep the day-to-day business of the family – jobs, parenting, etc. – as steady as possible. Finally, we introduce new “management” ideas to restructure future co-parenting interactions.
We acknowledge that the divorcing family remains a tremendously valuable and precious asset that must be protected at all times, even during the divorce process. And that the co-parents will need to continue to interact, albeit in their new co-parenting versus marriage role, after the divorce process is complete.
The litigation process views the time period after litigation as an externality that doesn’t matter. Another phrase for this “externality” is “the rest of your life.”