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To be someone more precise in language, this article really make the point that divorce transfers capital from the unlucky couple to a pair of fortunate lawyers

To be someone more precise in language, this article really make the point that divorce transfers capital from the unlucky couple to a pair of fortunate lawyers. Capital is not so much destroyed as transferred.

cma 16y ago
As if the only thing that happens when you hire a lawyer is you pay them money. The "capital" that is destroyed is ultimately the lawyers' time and energy.
Dylan16807 16y ago
Yeah, this isn't at all the article I was expecting because of that.
- barrkel 16y ago
  Lawyers are a transaction cost of transfer of property in divorces. Even without direct destruction of the value of the property, the transaction cost hurts economic efficiency, see e.g. Coase theorem.
barrkel 16y ago
A business with the current input of one of its founders, motivated by a large share of ownership, is very probably a less valuable organization without that input. I would bet that the situation described in the article definitely amounted to destruction of wealth and wealth-generating capability.
BobbyH 16y ago
I think he does make the point that divorce does more than transfer capital from the unlucky couple to lawyers. There's also a value transfer from the unlucky couple to the person who provides liquidity by buying the couple's business for cheap. Using his example, the value of the couple pre-divorce was (roughly): (A) $1,000,000 in value for his share of his business, plus (B) $55,000 in cash. That's $1,055,000 in value, or $527,500 for each partner. After the divorce, the value of the couple is: (A) $250,000 in value for his share of the business (because of a quick sale of an illiquid business), plus (B) $0 in cash ($55k in cash to lawyers). That's a total of $250k, or $125k for each partner. The majority of the value transfer, then, goes to the buyer of the couple's illiquid business, which must be sold too-quickly. Or, to take a more charitable view of the buyer, the fall in value may be from the value destruction from one of the partners suddenly exiting the business.
dennisgorelik 16y ago
It's only partially transfer of capital. Significant chunk of capital is destroyed: business does not function properly, because one of the owners is under duress, lawyers have to spend their time and efforts "transferring capital", ...

cma 16y ago

As if the only thing that happens when you hire a lawyer is you pay them money. The "capital" that is destroyed is ultimately the lawyers' time and energy.

Dylan16807 16y ago

Yeah, this isn't at all the article I was expecting because of that.

barrkel 16y ago
Lawyers are a transaction cost of transfer of property in divorces. Even without direct destruction of the value of the property, the transaction cost hurts economic efficiency, see e.g. Coase theorem.

barrkel 16y ago

A business with the current input of one of its founders, motivated by a large share of ownership, is very probably a less valuable organization without that input. I would bet that the situation described in the article definitely amounted to destruction of wealth and wealth-generating capability.

BobbyH 16y ago

I think he does make the point that divorce does more than transfer capital from the unlucky couple to lawyers. There's also a value transfer from the unlucky couple to the person who provides liquidity by buying the couple's business for cheap. Using his example, the value of the couple pre-divorce was (roughly): (A) $1,000,000 in value for his share of his business, plus (B) $55,000 in cash. That's $1,055,000 in value, or $527,500 for each partner. After the divorce, the value of the couple is: (A) $250,000 in value for his share of the business (because of a quick sale of an illiquid business), plus (B) $0 in cash ($55k in cash to lawyers). That's a total of $250k, or $125k for each partner. The majority of the value transfer, then, goes to the buyer of the couple's illiquid business, which must be sold too-quickly. Or, to take a more charitable view of the buyer, the fall in value may be from the value destruction from one of the partners suddenly exiting the business.

dennisgorelik 16y ago

It's only partially transfer of capital. Significant chunk of capital is destroyed: business does not function properly, because one of the owners is under duress, lawyers have to spend their time and efforts "transferring capital", ...