The post-financial crisis period, many corporate bankruptcies involve complicated, fragmented capital structures characterized by many layers of debt and complex legal entity structures with many subsidiaries. Why do capital structures evolve this way, given that they make distress more costly to resolve? I suggest an answer based on the notion that investors may disagree about the value of assets that can be used as collateral for loans. When such disagreement exists, firms have the incentive to exploit it by issuing claims that are targeted to subsets of the assets that investors are more optimistic about. This can create zero-sum disputes about entitlements to the firm’s reorganization value when distress occurs. These disagreements minimize the borrower’s cost of funds ex-ante by maximizing perceived recoveries, but they can be inefficient ex-post, because resolving valuation disputes is socially costly. The model predicts greater capital structure complexity when financial distress is more likely, and when disagreements about asset values are larger, as in a bubble.