Divorce is Big Business
The U.S. divorce industry falls somewhere between a conservative $50 billion and a startling $175 billion a year.
(page 1 of 2)
The irony is that this lucrative industry almost always leaves it’s clients poorer. But the trend is toward cheaper and less contentious breakups, which hopefully leaves the former spouses and their children with less bitterness and a better quality of life.
Divorce is big business – maybe even bigger than the wedding business in America.
That’s because contested divorces involve more than just lawyers. There are also accountants, parenting consultants and other niche specialists to be paid, plus the money spent by the newly single to rebuild their lives.
While hard numbers are impossible to nail down, various trade and business groups estimate the U.S. divorce industry falls somewhere between a conservative $50 billion a year and a startling $175 billion. By contrast, industry and trade groups put the wedding industry somewhere between $40 billion to $51 billion every year.
In the U.S. alone, there are more than a million divorces each year, about 5,000 just in Hawaii. Locally, there are people who are helping to transform divorce into a more civil process- and hopefully reduce costs along the way.
Annabel Murray, a founding partner of the Children’s Law Center in Honolulu, is an attorney who specializes in collaborative divorces. She says she puts a strong focus on the quality of life for everyone after a divorce.
Photo: David Croxford
Annabel Murray, a founding partner of the Children’s Law Center in Honolulu and a collaborative divorce attorney, says she now focuses on bringing her clients to settlement earlier, with greater attention given to the quality of life for all parties after the divorce.
While it is generally believed that a collaborative divorce is cheaper than a contentious, litigated affair, the greater benefit, according to Murray, is the end result. “Dollar for dollar, the client is better off paying me and the other experts to help navigate shared custody, co-parenting and life decisions, and help set them on a path after divorce, rather than paying me to prepare litigation documents.”
Attorney Brad Coates is the founder of the largest family law practice in the state, Coates & Frey, and author of the book, “Divorce with Decency,” now in its fourth printing. He says he built his practice and its reputation on early settlement, long before it became a trend and earned a specialty name.
“I can either bring the client in and figure out how to do it uncontested, or I can say, ‘Tell me all your troubles,’ and end up with restraining orders, multiple filings and more billable hours,” Coates says. “Our goal is to get to a settlement before the courts get their grubby hands on it.”
Coates maintains that his clients typically know what assets they have, how much is in their bank accounts and what debts need to be addressed. “How smart do you have to be to divide by two?” he points out. Coates’ competitors and detractors may suggest he isn’t being the zealous advocate his clients deserve and that greater due diligence is needed, but Coates is adamant. “We try to settle every case we can, as fast as we can, as amicably as we can. But frankly, we make the most money on the ones where clients refuse to settle.”
The data on the average cost of a divorce is difficult to nail down. An uncontested divorce where the parties represent themselves can be accomplished for as little as $500 or less. Bring in the attorneys, settle quickly and have them file the paperwork and couples are looking at somewhere between $3,500 - $5,000. Begin arguing over property and custody, and the costs rise quickly, ranging anywhere between $10,000 to $50,000 and higher.
Wevorce is a San Francisco Bay area start-up that specializes in software built for collaborative divorces. The company estimates the annual cost of divorce in America at $100 billion, broken down into three relatively even chunks:
- Pre-decree process: filing for the divorce, sorting property and custody, and finalizing the divorce;
- Post-decree process: returning to the legal system after the divorce is final to modify the decree, usually based on issues of custody, support or other financial matters;
- Transactional costs: the costs of starting over, including everything from real estate commissions on home sales, new household goods and new cars to insurance policies, therapy sessions and life coaches.
Family law – once the stepchild of the law profession – found its lucrative niche when home values skyrocketed and baby boomers increasingly opted for dual-income lifestyles, thus creating a bigger pool of assets that had to be divided when the relationship went sour.
While rates declined briefly in the late 20th century, divorce now claims more than 50 percent of all marriages. While it’s long been known that those who marry young are more likely to end up divorced, their assets are often minimal and the divorce process less complicated.
Baby boomers, folks born between 1946 and 1964, have added their own twist to the divorce industry – so-called “gray divorces” now represent 25 percent of all divorces filed each year. The divorce rate among people 50 and older has doubled in the past 20 years. Those divorces often involve a long history, tangled assets, and room for greater complications. While it’s too early to have data on the issue, industry experts are also anticipating an increase in same-sex divorces in the coming years, prompting law firms to staff and plan accordingly.
In the wake of the crazy money years of the late 1990s and early 2000s – and heightened by media attention on nasty celebrity breakups – divorce intensified as a legal battleground, each party suing the other for property, custody, family toys and whatever other spoils there might be. Trained to advocate zealously on behalf of their clients, lawyers believed it was their obligation to fight for whatever their clients demanded, and bill hourly for the service. Cases often included other specialists – private investigators, forensic accountants, parenting “experts” and others – all billing the client for their time and work to tilt the decision in the client’s favor. The most financially lucrative cases for the lawyers and the tribe of specialists were those that dragged on, continuing to litigate and racking up billable hours in the process.
Mark Browning is the senior judge of Hawaii’s Family Court system and an enthusiastic supporter of the collaborative process when couples decide to divorce. “Anything that keeps you out of court is always better,” he says.
Photo: Rae Huo
Wevorce co-founder Jeff Reynolds says his company grew out of a final-straw, Sunday-morning phone call to his co-founder, a divorce lawyer, from one of her clients. The client, a professional woman with a six-figure salary, demanded an injunction and a temporary restraining order because her estranged husband had removed all the toilet paper from the family home without permission.
Reynolds believes the big disconnect in the divorce world is attempting to apply a legal solution to emotional, family and financial issues. “The difference between a 3 p.m. and a 6 p.m. pick-up time for the kids is not a legal issue, and neither is toilet paper,” he says. Judges, divorce lawyers, clients and child-welfare advocates largely share the same view and are seeking ways to make the kinder, simpler divorces a lucrative business.
Gwyneth Paltrow brought the national spotlight – and the national snicker – to the term “conscious uncoupling” when announcing her split from long-time husband Chris Martin. But the concept has been brewing in entrepreneurial labs and forward-thinking law offices and family courtrooms for some time. “Collaborative Law,” in which the couple agrees not to take their divorce to trial but rather work out their settlement agreement in collaboration with their attorneys and other specialists, is the latest trend.
Judge Mark Browning, senior judge of Hawaii’s Family Court system, agrees with the collaborative trend. “Why go to trial and put your life and that of your kid in the hands of a guy in a black robe? That’s nuts! Anything that keeps you out of court is always better.”
The trend toward avoiding a contentious trial and preserving the integrity of the family has sparked a proliferation of specialists and unforeseen players joining attorneys in the business of divorce.
- Therapists have long been on the short list of vendors in divorce situations. Co-parenting experts, life coaches and similar specialists are now coming to the table to help in the collaborative process and guide parents toward a healthy post-divorce life.
- Certified divorce financial planners help couples sort their personal assets and liabilities for a healthy reboot, while business evaluators are often required to determine the true value of family businesses and recommend how they be divided.
- Divorce planners, much like wedding planners, are now available to work with one or both parties to guide them through the legal and personal untangling of the marriage and starting over.
Dividing one home into two new homes usually means multiplying by two.
- Insurance policies need to be split and beneficiaries re-established, especially if children are involved. That can include auto insurance, homeowners or renters insurance, health insurance and life insurance.
- Real estate needs are immediate and pressing. The family home may be sold, requiring new homes for both parties and different criteria and attributes for newly single adults shuttling children back and forth. Mortgage companies, title companies, moving companies and even utility companies all get a piece of the action.
- The need for basic household goods doubles – two vacuums, two coffee makers, twice as many sheets and towels, new flatware, new pots and pans. At the more affluent end of the spectrum, savvy interior designers understand the aesthetic the newly single clients might prefer. For the rest of us, retailers stock an assortment of goods to appeal to the newly single adult.
- The traditional family-car arrangement – a family car and a commuter car, perhaps – no longer works, leaving one or both partners trading up or down for new wheels.
Divorced couples finally free of their marriages look to start over and assemble their new lives, including:
- New financial plans and savings plans and retirement plans;
- New gym memberships, wardrobes, beauty consultants, plastic surgery or other self-improvement indulgences;
- New dating services, matchmaking opportunities and social gatherings.
In his book, “Divorce with Decency,” attorney Brad Coates cites a 2006 report that says the average American who divorces loses 77 percent of his or her wealth in the process.
Photo: Rae Huo
However you slice it, no one comes out of a divorce financially better off. At a minimum, the family wealth has likely been split in half between the two parties, and the transactional costs of the process have lessened the remainder even more. In “Divorce with Decency,” attorney Coates cites a 2006 report from “The Journal of Sociology” that concludes Americans who divorce lose an average of 77 percent of their wealth in the process.
While 70 percent of the divorces nationally are initiated by women, these same women are generally the more financially disabled of the spouses immediately following the divorce and, in some cases, never recover. A study by the Policy Center on Aging at Brandeis University found an alarming number of women in their 60s living in poverty after divorce, with little opportunity for recovery.
Coates also points to the California Children of Divorce Project’s findings that 40 percent of men and 75 percent of women undergo significant decline in their standards of living during and after divorce, but that men rebound much faster, leaving women with long-term economic ramifications after their former spouses have moved on.
For those women due money – either child support or alimony – from their former spouses, the news doesn’t get better. Most have difficulty collecting it, with 25 percent never receiving any of it, and only half receiving all that is owed to them.
Men suffer their own post-divorce issues, including mental-health concerns and self-destructive physical impairment, and are less likely than women to seek counseling and proactive health intervention.
While no data is currently available detailing the short and long-term impact of these conditions on workplace productivity and other job-related issues, it is clear that the impact is real and potentially crippling. The notion that family issues won’t spill over into the workplace is getting harder and harder to defend.
According to Browning, Hawaii’s court system is on the cutting edge of educating couples on how destructive the process is to their families and financial assets, thereby urging them to find an amicable settlement rather than taking the case to trial. State-sponsored programs include Kids First, a mandatory co-parenting workshop, along with the Volunteer Master Settlement Program, to which attorneys volunteer their time to meet with divorcing couples and advise them on settlement options.
“The money spent (on divorce) is coming straight from the pockets of people in crisis,” Browning says. “It is the attorneys’ duty to be the clients’ advocate while also doing no harm and getting the clients in the best position they can be in at the end of the process.”
Of the approximately 5,000 divorces filed annually in Hawaii, about half are now uncontested, meaning a settlement has been reached between the parties before filing the necessary paperwork. The majority of those cases are handled pro se, meaning the couples push the paperwork through the system without the direction of an attorney of record. It is believed that most of those couples seek some expert counsel in the process, whether through a do-it-yourself consultation with attorneys or relying on the do-it-yourself assets widely available to divorcing couples in books or online.
Of the remaining 2,500 contested divorces filed annually, most find their way to settlement prior to a trial, according to Browning, and only 10 percent – less than 500 per year – end up going to trial.
While many couples are choosing to go pro se and represent themselves, the process is cumbersome. There are more than 60 forms on the Family Court website pertaining to divorce, and knowing which ones to file in what order requires careful attention to detail and usually frequent trips to and from the family court clerks in Kapolei.
For families with children, attending a session of Kids First co-parenting workshop for both parents and children is required before the final divorce decree can be issued. The Kids First calendar is usually packed, often delaying the final decree for weeks after the settlement has been reached and the last forms filed.
Since Hawaii judges are appointed to the bench, the system is not prone to the corruption suspected in states where judges are elected and lawyers are believed to curry favor through campaign contributions. Hawaii’s judges come from all aspects of the legal system, however, and their previous experience in family law is sometimes minimal. Some attorneys and litigants complain that rulings are often inconsistent and sometimes seem to reflect the personal biases of the judges rather than a consistent interpretation of the law. While there are systems in place to sanction judges and attorneys deemed to have acted unprofessionally, Hawaii’s attorneys and judges who face each other regularly on a variety of cases, makes it unlikely they will use those resources.
Browning summed up his experience in family court with the story of one little boy he met at a Kids First session one night, early in his tenure on the family court bench. The judge met with the kids, and after chatting with them for a bit, asked if anyone had any questions. One nine-year-old boy raised his hand. “Judge, will you please tell my mom and dad to share me?”
“In my 19 years on the bench,” Browning says, “no one’s ever said it better.”
Do you like what you read? Subscribe to Hawaii Business Magazine »