Divorce Registry

This guest blog post is by Regent Law 2L and current Family Law student Angela Sterling:

You bought your friends’ wedding gifts; now you can buy their divorce on their wedding registry.  Or… can even a complete stranger pay for your divorce? Shockingly, Yes. In this modern world, you can get strangers to pay for just about anything, including your divorce.  In 2016, Sara and Josh Margulis added a divorce registry to their crowdfunding platform, Plumfund.

For those unfamiliar with the term, crowdfunding is as its name indicates, funding from the crowd - raising small amounts of money from a large number of “investors,” usually family and friends. Crowdfunding websites allow the public to browse and donate to any campaign. The most commonly known crowdfunding website is GoFundme.

Sara and Josh Margulis first launched HoneyFund, a crowdfunding platform, for newlyweds to raise and plan the honeymoon of their dreams. When HoneyFund was a success, they launched Plumfund, a crowdfunding platform, to help people underwrite “life events” such as baby showers, birthday parties, etc. They have come full circle by adding divorce registry to Plumfund.   

The founders’ original intent was to help those married individuals going through a tough time. Divorce is not an easy matter physically, emotionally, or financially. However, being able to crowdfund a divorce seems to be pushing our society, especially younger generations, into thinking that divorce is “trendy.”  It certainly does not help that divorce selfies and divorce parties are trending on social media. To successfully crowdfund, a person has to tell a compelling story and market one's divorce.  And investors like Kevin O’Leary of Plumfund are ready and willing to make money off a person’s tragic life event. “The responsible monetization of divorce is absolutely important because 50% of marriages end in failure. I can’t wait to start promoting it – I think it’s going to be huge.” – Kevin O’Leary.

Should we be fostering the effect of people profiting from other people’s divorce? Are there any legal complications with crowdfunding?

Plumfund and many crowdfunding websites bait people in with a big sign that reads FREE. The websites allow users to create a campaign free of charge. However, when you want to cash out the website then takes 2.8% plus $0.30 of the money raised, effectively making a nice profit off of people’s divorces.

The most disturbing part of divorce registry is that many family law attorneys are indifferent or in favor of crowdfunding a divorce. There is no doubt that crowdfunding a divorce will be new revenue for attorneys, especially since it is a common knowledge that divorce can be pricy.  Some opt for a DIY (do it yourself) divorce because divorce litigation can be costly. Thus, many attorneys are embracing and giving tips on how to successfully crowdfund a divorce disregarding the possible legal complications.

Crowdfunding a divorce is a fairly new concept. Currently, there are no laws or case law regarding crowdfunding a divorce. However, just because there is no law does not mean there are no legal complications.  Some of those possible legal problems include tax complications, privacy invasion, and judicial interpretation.

First, there are tax complications. There have been a few news reports about crowdfunding becoming a tax nightmare, as people have reported that crowdfunding for a sick friend led to a big tax bill because the IRS required the funds raised be claimed as income, even if the person who raised funds doesn’t receive a cent of the funds raised.  There is little to no guidance from the IRS on this matter. In the IRS’s defense, there are no regulations regarding crowdfunding. To control the confusion, the IRS released a statement asserting that the crowdfunded funds are includible income if they are not (1) a loan; (2) capital contributed to an entity in exchange for an equity interest (stock exchange); or (3) a gift made out of detached generosity and without “quid pro quo” (favors).  However, the IRS also stated that under federal income tax rules a voluntary transfer without a quid pro quo isn’t necessarily a gift, meaning even gifts are includible income for federal tax.  (I.R.S. Information Letter 2016-0036 (March 30, 2016).)

Secondly, crowdfunding implicates a lack of privacy. Divorce is one of the most heavily litigated areas in the law. However, to run a successful crowdfunding campaign, you need to reveal a side of your divorce that you would normally keep private. During this “reveal” you may let slip an important detail about the pending litigation. In a worst case scenario, the opposing side could use what you have revealed online against you.

Third, how should courts treat the funds received through crowdfunding? If you are a disgruntled spouse who decided to raise funds during the marriage, the raised funds are marital property. Therefore, the court would have to distribute those funds accordingly based on the jurisdiction. In a community property state that would mean splitting the divorce funds 50-50. Furthermore, should the court consider the crowdfunded funds when deciding who pays spousal support or child support?

There are many unanswered legal complications with crowdfunding a divorce.  Attorneys should not be quick to endorse it, even if it pays their fees.

Most importantly, divorce is not an easy matter physically, emotionally, or financially. Divorce could be described as tearing apart a person’s body. That is how painful and emotional divorce can be.  It is not something that should be promoted or used for profiting.  A responsible society must consider whether crowdfunding a divorce is truly the type of support people need when a marriage is falling apart. We can rally around those we love who may be going through a hard time and support them physically, emotionally, and financially without endorsing the most difficult time of their lives as a spectator sport by profiting from it with crowdfunding. 

The bottom line is that a divorce registry does not advance family restoration.  Friends don’t let friends crowdfund their divorce.