Murdoch's Divorce Could Be a Financial Disaster

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June 14 2013 2:32 PM

Murdoch's Divorce Could Be a Financial Disaster

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Walk your separate ways, but don't get a real divorce!

Photo by Frederic J. Brown/AFP/Getty Images

Everyone is saying that Rupert Murdoch’s history of exceptional business decisions applies to his just-filed divorce from his wife of 14 years, Wendi Deng. They had a prenuptial agreement, Murdoch makes deals for a living, and this is his third time at the divorce rodeo. These people are so rich—Murdoch’s net worth is more than $11 billion—that any outcome of the split will leave both of them more than loaded. But everyone may be wrong. As a business matter, Murdoch v. the New York matrimonial system could be disastrous.

The cheapest and safest way for an ultra-high-net-worth person to get out of a marriage is often not to get divorced at all but to buy his way out of the presence of his spouse. Live independent lives. Cultivate separate interests. It doesn’t matter. But at such a sensitive moment, you might not want to risk the potential financial disaster of a divorce.

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Rupert Murdoch is 82 years old, and he’s two weeks away from a major corporate restructuring in which his entities will be divided. Why now enter into a process of separating assets, defending or fighting a prenup, and negotiating or litigating payments to his soon-to-be ex? Add to that the public relations overtime and the coordination of the divorce with the corporate deal and the business sense behind Murdoch’s filing is a mystery. 

Ignore for a moment the psychological and emotional impact of divorce on children (there are two children, ages 9 and 11, of the Murdoch-Deng marriage), and just look at the money here. Divorce guarantees major expense of money and energy and carries the risk of reputational harm. No other kind of litigation, aside from trial for serious felonies, declares open season on personal or business dealings to quite the extent that divorce does. When people with children and money divorce, three main cost types are on the table: a division of assets, payment of maintenance (alimony) and child support, and legal fees. Then there’s the opportunity cost of divorce: Every bit of attention to negotiation or litigation could otherwise go to making more money. Defending one’s reputation, especially for famous, high-net-worth divorcing people, also carries necessary costs and risks. An unofficial separation in which Mr. and Mrs. can afford to live well and to be far from each other, as these two already seem to have mastered, costs less across all spheres.

Even with the existence of a prenuptial agreement, dissolving a marriage of this length that involves the support of two children (again, we’re not talking about custody, just money) and that spanned years in which Murdoch’s already enormous wealth increased dramatically is a major undertaking. His last divorce is said to have cost him more than $1 billion.

We may learn today or soon enough of a deus ex coniugium or of “shocking details” behind the split that made filing for divorce Murdoch’s best option. Maybe, as his wife, she posed a not-yet-known legal risk to the upcoming corporate separation. Maybe she did something personally reprehensible. Maybe, as his companies count down to their own breakup, Murdoch is just in a splitsville kind of mood. Business-school modeling can’t account for that. 

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