Divorce Destroys Capital

How do you go from a $3 million net worth and $120k/yr income to bankruptcy in under five years?


Capital Acquisition is Half the Battle

In 1995, my father owned half a rapidly growing landscaping company doing around  $3 million in sales a year. They had just bought and built a new office/headquarters, and were growing at around 10% a year.

That year, my parents decided to get divorced.

The Other Half is Capital Retention

My father immediately hired an attorney to represent himself in court. The attorney required a retention fee of $5,000 cash in order to take him on. That week, my mother got an inkling of my dad’s net worth, and decided she needed the best attorney possible.

A relative gave my mom the $50,000 retention fee necessary for the top local attorney.

Lawyers Exist to Litigate

In Florida, husbands can be held liable for their spouse’s attorney fees. In my dad’s case, he was.

Immediately, he lost $55,000 of his net worth, but more importantly, $55,000 of his liquid net worth.

They Profit by Destroying Deals

Early on, my father and mother decided it would be best to do a 50/50 split of assets. However, the attorneys would be rendered useless, so they launched personal attacks to stir the pot and increase fees.

Whenever a deal seemed close, a new personal attack would arise. But on the horizon loomed a bigger problem. Liquidity.

Creating a Need to Liquidate Assets ASAP

Child support payments are one of two possible debts that can land you in jail. (The other is taxes.)

Desperation for liquidity means one thing: you are at the mercy of whoever can provide it, and at whatever discount necessary.

Leaving You in a Horrible Position to Make Deals

My dad’s partner offered to buy his half of the business. What started off as a million dollar buyout ended up being manipulated and talked down to around $250k, because of a desperate need for capital.

You Must Have a Prenuptial Agreement

Even if it’s only to keep your net worth from going to lawyers who will use it against you, to make you hate the person you loved. Decide ahead of time not to waste resources, capital, and worry arguing through the wealth destroying proxy of lawyers.

3 thoughts on “Divorce Destroys Capital

  1. Plenty of high finance’s titans have made mints providing liquidity when others had none. Example: Citadel Investment Group, a Chicago hedge fund that bought Amaranth’s and E*Trade’s (their mortgage business’s) entire position books at massive discounts. The older I get, the more I realize life is about not screwing up — avoiding errors of commission — as much as it’s about doing the right thing (avoiding errors of omission). Great post.

  2. I have to agree with NOT getting married after seeing my father after 4 or 5 divorces in his mid 70’s he has NOTHING, but a roof over his head and low paying job that he will have to work until he dies. Interested in the pre-nup option, but I also wonder how that affects your significant other. Are you just outright admitting that one day you are going to split?

Leave a Reply

Your email address will not be published. Required fields are marked *