The Economist: Money in Misery...

THURSDAY, FEBRUARY 05, 2009 

Money in Misery (extracts) 

International marriages are crumbling with the global economy, revealing unseen pitfalls in cross-border divorce law. Good news for lawyers.

MARRIAGES that thrive on money may wither with thrift. That is a depressing lesson from the world economic crisis, which has brought a surge in business for divorce lawyers in former boomtowns such as London and New York. When one or both spouses is from a foreign country, divorce is not just sad but complicated too—especially when most assets may be in a third country, a pension in a fourth, and offspring in a fifth. 

Globalisation has made binational marriages, once exotic, much more common among high-earning, highly mobile families. When they stop being high-earning, life gets tricky.

So who sues whom for divorce and where? How much money will be awarded to whom? Will it be collected? And how? The answers are far trickier than most non-lawyers would imagine. Take, for example, this lightly disguised but real-life example: a wealthy philandering Texan banker with a French wife. Formerly resident in New York, with a recently-lost good job and rented house in London, he now plans to move back to Texas. His wife, newly suspicious and with no money of her own, wants to take the children home to France. She needs her family, she says. What she actually needs is urgent, specialist legal advice. 

A London divorce settlement might give her many millions: a house, school fees and maintenance until the children are adults, or even indefinitely.

In the wife's native France, things will look very different. In her favour is that conduct counts—so adulterous spouses will be penalised. In most other Western countries, divorce courts have given up attributing blame. Even domestic violence is often ignored, though it still counts heavily in some jurisdictions, such as Florida. 

But in the typical French divorce, any alimony (also called maintenance) will be less and for eight years at most; any prenuptial agreement will be binding. Only assets acquired during the marriage are up for grabs. If, in our example, the American husband moves to France, he will be expected to play an equal part in bringing up the children—a requirement that would delight some fathers, but by no means all. If the errant husband has the divorce filed in Texas, the tables are turned even more dramatically.

If the Texan husband decides to file in New York, however, he may find the outcome startlingly expensive. As in some English court rulings, New York courts may award one party a share of a spouse's future earnings—assuming that they are based on a qualification, such as an MBA or medical degree, that was earned thanks to a joint effort in happier times. Yet New York law has one big catch: unless the parties have signed a formal separation agreement it requires proof of cruelty, adultery or abandonment, whereas other states allow “irreconcilable differences” as grounds for a divorce. So binational couples in New York who want to end their marriage may find themselves unable to do it there, and squabbling about alternatives. Rules differ, too, on what constitutes residency in a particular jurisdiction. In hedonistic Las Vegas, six weeks is enough. 

According to Jeremy Morley, an international divorce lawyer based in New York, hiding assets from a spouse is also much easier in some countries than in others. California, at one extreme, requires complete disclosure of assets. At the other extreme, Austria, Japan and many other countries require very little disclosure. A California court recently ordered a husband to pay $390,000 in costs and penalties to his wife because he did not disclose some significant financial information. In another jurisdiction, the assets could have stayed hidden.

Making wily choices about possible jurisdictions is often criticised as “forum shopping”. But the stakes are high: ending up in the wrong legal system, or with the wrong approach, may mean not just poverty but misery. Mr Morley says the differences between one divorce jurisdiction and another are far more than, say, playing a sporting fixture at home or away. As the table shows, totally different rules apply. 

So it is understandable that a disillusioned spouse, and his or her lawyer, will try hard to get the most favourable jurisdiction. Yet that can all too easily lead to each party starting, or even finishing, a divorce in a different country. Sorting out these cross-border legal wrangles can be colossally expensive. A tussle between jurisdictions usually starts in six figures, in dollars, euros or pounds; when all four legal bills, of both sides' costs in both countries, are totted up, it easily shoots into seven figures. And it is hugely time-consuming. The children involved may reach adulthood before the final verdicts are given.