Divorcing couples are constantly amazed and disturbed by the amount of professional fees they incur during their divorce process. The cost of litigating a high net worth divorce case usually ranges from $50,000 to $200,000 per party with much higher costs in some cases. Why does it cost so much? I have watched hundreds of millions of dollars in assets be divided in my work as an expert witness and consultant in divorce cases. Along the way, I have developed the following insights:
Why does it cost so much to get a divorce?
Divorce is a major financial transaction!
A divorce property division, along with spousal and child support issues,
constitutes the largest most complex financial transaction ever entered
into by most people. Large financial transactions of any kind typically
involve time consuming work and analysis by attorneys, financial and valuation
experts, and other involved professionals. In a divorce each and
every asset acquired by two people from birth until divorce must be transferred
to either the husband or wife. In a high net worth divorce, this
can result in the transfer of many diverse individual assets and liabilities
worth millions of dollars. Compare this, for example, with the cost
to transfer a $5,000,000 single asset such as a closely held business.
If you paid a 10% sales commission and 2% in additional legal and accounting
fees, the cost to transfer this single business would be $600,000.
If the $5,000,000 asset transferred were a single-family residence, the
cost to transfer the residence at a 6% commission
would be $300,000. The complexity and time commitment to analyze and negotiate the transfer of all assets owned by a couple is exponentially greater than the transfer of a single asset.
The divorce environment is a major cost factor
There is an old saying that when attorneys represent criminals they
see bad people on their best behavior and when they represent divorcing
parties they see good people at their worst behavior. Let's face
it, divorce is one of the most traumatic gut wrenching experiences that
a person can go through. All divorcing individuals experience some
degree of dysfunction. The cost of getting a divorce is directly
proportional to the degree of dysfunction the divorcing couple experiences.
Lack of trust, dishonesty, attempted manipulation of the process, and attempted
intimidation all increase the cost of a divorce. Ironically, this is a major cost factor that a divorcing couple can control through cooperation and self-discipline.
Establishing or refuting separate property
Most states allow a divorcing party to keep his or her separate property while the court equitably divides the marital property. If there is a material amount of separate property to be preserved, the party claiming separate property has an obligation to prove any separate property claims. This is done through the process of “Asset Tracing.” If multiple assets must be traced over a multi-year marriage, the cost can be quite high.
Dividing personal property
Without a doubt, to most judges, attorneys, and other involved professionals, the division of household goods and other personal property is the most despised task in a divorce. If divorcing parties can agree on a division of personal property without involving professionals and the court, their fees to professionals will be greatly reduced.
In summary, the high cost of divorce is primarily related to the complexity of the task and the environment in which the process takes place. A divorcing couple can reduce the cost by not creating a destructive and negative environment. Finally, if parties view their divorce as an important and complex financial transaction, the cost may not seem out of line with other non-divorce financial transactions.