A startup is betting $10K your marriage fails | Hacker News Reader

A startup is betting $10K your marriage fails

nbr.com

43 pointsdskrvk57 comments

On one hand this seems openly predatory toward lower income couples who are more likely to divorce and more likely to need the money but on the other I'm surprised that there are investors who want to absorb years of handing out loans, basically giving away money, to then become a debt collecting business that will be threatened by default rates. And who wants to run that business where you give people money, wait for their nasty divorce and then harass them into repayment (not that people don't repay their debts, but in all honesty harassment is inevitable here).

there are tons of investors that would want to invest in this. a loan with a time horizon of 3,5,10 years is certainly worth a look and would fit in with any consumer finance type investment (micro loans, car financings, etc).

the investors would obviously not be involved in debt collection, and neither would the company itself. like any consumer finance (credit card, e.g.) it is a well-structured process of third-parties that handle collection. this is a slam dunk if they can get this executed. the PR risk is real however, i grant you that. there is real regulatory risk here

With a normal loan, the borrower enters into the agreement with the intention of eventually paying back the loan. In this case, they do not, and are unlikely to react kindly when confronted with repayment after going through a divorce. I hope SwanLuv is massively discounting the anticipated debt in their calculations, because I think this debt will be even less valuable than the average debt sent to a collection agency.

obv. your discount rate will reflect the higher default rate. one comp are student loans extended by trade schools; there is a massive amount of loans outstanding by students that either never graduate or never find a job in their trade. they too are unhappy but that is the nature of debt. this will show up on your credit report just like unpaid credit card debt, student loans or car loans

A loan is expected to repaid, with some degree of delinquency.

Statistically, ~50% of people will never be expected to repay this, and even on the ~50% who should repay you have to find them (which in 20 years time maybe harder than expected, since they are unlikely to let the company know they now need to pay it back).

Superficially that doesn't seem like an awesome investment to me.

this is essentially an options contract; if you can trade against irrationality then you will win every time; the data is clear that the difference between a couple's expectation of the success of their marriage versus statistical reality is a significant one; that is why if you can manufacture this trade you will reap the economic surplus.

this is partially how las vegas and state lotteries work; despite a negative expected value people continue to gamble partially because of irrational overconfidence

What a horrible product to offer. Couples planning to marry will almost certainly be more optimistic about their chances for eventual divorce than the facts warrant. And even if they're realistic, there's immense social pressure not to admit it. This company's business model is basically going to pressure people into signing up even if it's a bad decision. And then to cap it off, they'll be collecting on the debt right when couples are going through a terrible time.

I feel like this is the sort of business that Martin Shkreli would start if he were outright evil instead of just a sociopath.

Nobody is forcing couples to (under) estimate their divorce probability or make bets about that probability.

Clever predators don't force anything.

Implying that it's ok to take advantage of people as long as you don't force it?

Wells Fargo will happily let me (but not force me to) take a highly-leveraged long position in the San Fransisco residential real estate market (in mid February 2016, arguably near the top of the market) which is a bet with ~comparable downside probability to divorce and ~similarly devastating payoff if things go south.

Does that make Wells Fargo "clever predators?"

Yes.

You reminded me of another niche industry I discovered recently:

If a terminally ill person has a life insurance policy, they may want to use some of that money before they die. So there are companies that will purchase your life insurance from you if you can convince them that you'll die in the near future.

It all makes sense logically but this company is basically making a bet on how long this person lives, and the sooner that person dies the better for the company. It just feels wrong to me.

On one hand, I find it cynical and clever and appreciate the idea the way I appreciate black humor. On the other hand, I hope they get shut down. This is toxic and will cause problems:

1. Because people will see it as free money, it's likely to increase expenses for weddings which are already too high

2. It's extremely problematic in case of abusive relationships. They have a clause saying that the abuser is liable to repay the entire amount but that would not help a lot (most) people who escape from an abusive relationship. In many cases, people who've been abused will not want it to become known. There's a lot of reasons for it (the perceived stigma of having been abused, blaming themselves for having been abused, not wanting to cause problems to their ex,....). That means that a lot of abused people would still be stuck with the bill at the end. It also creates one more barrier to escaping from a an abusive relationship which is already hard enough.

This I believe is a net loss for society and will cause sufferings. Even if it might save a few couples who will work it out instead of facing the consequences of paying back the loan, it won't balance the number of people who stay in very bad situation just as a consequence of having had a slightly grander wedding party.

Surely there must be some doubt as to whether it's possible for the contract to be legally binding. Say that a woman divorces her husband because he's abusive. Must she then pay back her share of the loan?

Their website only appears to be interested in advertising this to straight white couples, which seems odd. (I'm not "offended" by this, but it's shitty advertising.)

Statistically, most couples in America are straight and white. It would make sense to advertise to this demo...however not exclusively.

It's the percentage of new marriages that's relevant here. Most are obviously straight, but is it still the case that the majority of new marriages in the US are between two white people? I'm not saying it is or it isn't, just curious.

> most couples in America are straight and white.

True, if by "most" you mean a bit more than 50%.

What other definition is there for "most"?

More than 50%

"Most" could be far less than 50% if there were no other cohorts that exceeded the lower percentage.

Some of the earlier articles mentioned they have a special abuse clause:

> Avy added there will be a few other stipulations in the contract, like a clause that makes one person responsible for the entire debt if a marriage ends because of abuse.

[1] http://www.geekwire.com/2015/this-startup-will-pay-for-your-...

Fine in theory, but presumably that would only apply straightforwardly if abuse was the official reason for the divorce.

Shouldn't someone officially end their marriage because of abuse if it is in fact caused by abuse? I don't see how this is an issue. I'm probably overlooking something, but the incentives seem to align.

A lot of abuse victims do not want to advertise the fact that they have been abused for a lot of reasons (stigma, Stockholm like syndrome of not wanting to cause problems to their ex, believing that the abuse their fault) and will divorce without officially saying that it's due to abuse.

Abusive relationships do not only create physical injuries but also psychological injuries and when someone decides to leave an abusive relationship and divorce, it's not necessarily easy for them to come to terms with what happened.

To me the bigger liability is when someone stays with an abusive relationship because of an unbearable financial disincentive to leave.

> Must she then pay back her share of the loan?

The husband always ends up paying in the case of divorce (with 2 minor exceptions).

What will happen is that the wife's divorce lawyer will ask for an extra $10,000 (or whatever amount) because she has this extra obligation. So if she's taking $250,000 of his money (or "their" money), the lawyer will demand it be upped to $260,000 so she can pay back her share of the loan.

Exceptions:

1. The rare situation in which the husband got an ironclad prenuptial agreement.

2. The rare situation in which the wife has much greater income and assets than the husband.

Why would you want to spend $31k on a wedding when you can spend that over a couple of years and create literally months of amazing memories, travelling and/or experiencing things together? I'd like to think the kind of people spending that much can do both, but the article claims this is the 'average cost'. wtf?

Here's a case where the median and average cost could be quite far apart.

Indeed:

> In 2012, when the average wedding cost was $27,427, the median was $18,086. In 2011, when the average was $27,021, the median was $16,886. In Manhattan, where the widely reported average is $76,687, the median is $55,104. And in Alaska, where the average is $15,504, the median is a mere $8,440.

Luckily, these are not national figures, merely numbers reported by visitors of a particular website. Unfortunately, I couldn't find any more representative numbers, especially with expenses measured against income level.

[1] http://www.slate.com/articles/life/weddings/2013/06/average_...

Because certain people in this world, narcissistic people, are desperate to put on displays of status before their peers, and fantasize about the effects such displays have on their social standing, and in other cases, some are capable of doing both of the things you've mentioned, and there there are those who actually do, in fact, do both.

> Because certain people in this world, narcissistic people, are desperate to put on displays of status before their peers, and fantasize about the effects such displays have on their social standing

Maybe for some, but having an expensive wedding is usually unavoidable when the basics (venue and food) are the bulk of that cost.

There are these things called "mother-in-laws" that try and make it as hard as possible to save money on weddings.

Technically they're called "mothers-in-law".

Not really. Both usages are common in spoken and written English.

As someone for whom English is not the first language, I have only ever heard the latter form. Thank you for sharing this information.

Mother-in-laws is incorrect because it makes the wrong word plural. There are two ways to look at it. The first is that "-in-law" is essentially an adjective, and unlike in other languages (e.g., Spanish), adjectives are not pluralized if describing plural nouns. (This is also why it is Attorneys General and not Attorney Generals.) Second, that it are the mothers, not the laws, that is being pluralized.

This may be a common mistake, but it is a mistake nonetheless.

Edit: Grammar. :)

[overconfident(?) comment by someone who has taken exactly one (1) linguistics class]

That seems prescriptivist.

If people take "Mother-in-law" to be a single word, then it is a single word. And if they take "Mother-in-laws" to be the plural of this word, then it is the plural of that word.

Language is determined by usage. People do not say "s-in-law" , they say "in-laws".

I don't mean that you can't have a preference that usage be a particular way. I might even encourage it. If you prefer people using "mothers-in-law" over "mother-in-laws" for the reasons you gave, that's fair. Go ahead and try to convince people to say it that way. Maybe they will agree with you, that doing it only that way has advantages. I can certainly see doing it that way having advantages in some cases.

But for it to be "wrong", there has to be some standard for it to be "wrong" by.

When speaking about english as it is spoken, the standard is pretty much the ways in which people speak it.

[/overconfident(?) comment by someone who has taken exactly one (1) linguistics class]

I am having trouble figuring out how in the world they can make the numbers work.

- The lowest possible rates I've seen for personal loans are ~9%.

- From the article: over 50 years the "cumulative divorce rate of ever-married women approached 40 percent". - 22% of divorces are caused by financial dificulty (https://www.institutedfa.com/Leading-Causes-Divorce/), so assume there is no money to get back there.

So for an investor to think giving out this type of loan is better than a standard personal loan the minimum rates they could offer would be 9 / .6 (stay married) / .8 (already bankrupt) = ~18.75%.

And there are all kind of unfavorable terms in this loan:

- it's a bullet loan so there is no incremental income stream (at least until the divorce)

- you have to track people's marital status to see when loans are due

So for the best qualified people you have to charge ~18.75% to come close to breaking even on the returns from a normal personal loan at which point you start having to worry about usury laws that cap the interest that can be charged.

Maybe their algorithm is just going to select for couples with high credit rating that they think will get divorced soon. But once it becomes known that getting approved for one of these loans is a strong signal of getting divorced it seems like people would shy away from them.

>> "But once it becomes known that getting approved for one of these loans is a strong signal of getting divorced it seems like people would shy away from them."

~100% of couples, always and everywhere, are sure they will never get divorced and that divorce is solely for other people. Centuries of actuarial results cannot convince them otherwise, so probably this won't either.

Sign me up for the Las Vegas franchise. I'll be f ing running that town within 10 years. It fits in well with my paramour introduction service business and my marriage dissolution insurance business ideas. I love finance geeks.

Good luck collecting on that! Divorce lawyers will love it though - another thing to argue over.

I would also recommend a perfect present for the new couple - a smart bedroom IoT CO2 meter that would help to keep the nasty CO2 levels in the bedroom inside comfortable levels such that the new couple can enjoy healthier and happier future together.

How often does divorce lead to bankruptcy as a side-effect? Will that influence the ability to collect?

This seems like a pretty sketchy idea just on the numbers side of things.

Even given a divorce they would see no interest or payments for most of the life of the loan - probably 5-10 years on average at least. And these are unsecured loans with the money probably going towards a wedding so there aren't going to be any assets there. The interest rate will have to be insane and even then they're going to have a hard time raising money.

In my opinion, this is a tricky way to convince thousands of couples to apply - and therefore provide data, etc - without any need to give the 10k to all of them.

Smart marketing move, but... What happens to OUR data if we're not selected to receive the 10k?

Can I guess? The company keeps the data and uses it whether you like it or not.

What happens when this company fails? I would assume the debt would be auctioned off, and a firm that specializing in this sort of investment would scoop it up at a discount.

It would be hilarious if they auctioned off the contracts separately. You could have couples (or a shill) showing up to bid on their own contract!

"Honey, I'm going to buy out our loan that's payable upon divorce"

"Why?"

"..."

If you were an automobile engineer and you discovered a car part that had a 30 to 50% failure rate, resulting in total destruction of the car, despite the fact that the part was sold with a stellar, inspiring, lifetime guarantee, what conclusion would you rationally come to?

Would you at least buy insurance for that part?

This seems like the opposite of insurance though

Yes, I'm aware. I was knocking on prenups ;)

Can I bet this startup will fail? Seriously there's no way the SEC and government will allow this. You can't just create any financial instrument you want and expect the government to just twiddle their thumbs and be ok with it. Otherwise we'd have eBay futures a long time ago.

OK, I'll bite: this is a terrible idea and I believe has no chance of success.

this is a phenomenal idea. priced like a fixed instrument, the stronger a relationship, the lower the price and the higher the interest rate. the site should allow wedding guests to hypothetically buy or sell a share of this loan (it must be hypothetical in order to avoid security law). if the hypothetical interest rate approaches zero then the couple can rethink their union and have an out clause: this 'loan' should be structured with an upfront fee that the company can collect from the couple if they decide to cancel this contract before the wedding.

I wish we could have done this for our wedding. Wedding costs are ridiculous. I had no idea how many little things there are, even when trying to do it as cheap as possible.

Ha, from the title I took this as a very dark take on the lifestyle involved to get a startup off the ground... not the case.

I think they might deal with a lot of chapter 7 bankruptcies

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