In The Squid and the Whale, the third feature from director Noah Baumbach, Jeff Daniels plays Bernard Berkman, a husband, father and allegedly once-great novelist, on the verge of slippping down his own mountain of bravado. Fully, even pathologically aware of his own shortcomings, Bernard is the kind of guy who can't let even the smallest spoken challenge go unmet. He's the kind of guy who challenges his son's ex-pro tennis coach to one-on-one; he's the kind of guy who straight-facedly refers to Franz Kafka as "one of my predecessors." He rents a crap house in Prospect Heights and tries to convince his kids that it's an "elegant home" in "the filet of the neighborhood". His catchphrase, "I think it has very little to do with me," essentially translates to "That's a YP, not an MP" in the language of a literature PhD. With his shaggy beard, long-limbed swagger and mid-80s Dad haircut, Daniels is unrecognizable in what could be the role of his career. He's a large part of the reason why The Squid and the Whale is one of the my favorite films of this year.

Bernard and Joan, his second wife and the mother of his two sons, are breaking up. Joan, played by Laura Linney with glamour-less temerity, is on the verge of publishing her first novel and has been having affairs for years; it is, Bernard glibly assumes, simply time for her to cut off the deadweight. This may not be altogether untrue – she wastes no time replacing him with someone young, empty-headed and pretty, and her overall attitude towards the break-up seems, if not masculinist, then definitely post-feminist. But Bernard's steadfast insistence that the decline of his marriage can only be explained by Joan's inability to accept the decline of his career is woefully, almost charmingly simpleminded. Joan, rather kindly, humors him for as long as she's able, until all she can do is laugh.

The Squid and the Whale is really the story of what the divorce does to Joan and Bernard's two sons, 16-year-old Walt (Roger Dodger's Jesse Eisenberg) and his younger brother Frank (Owen Kline, son of Kevin and Phoebe Cates). Walt is eagerly (and not a little eerily) morphing into his father's shadow; in a clever, pre-divorce scene at the dinner table, Linney nicely underplays Joan's horror over watching her son become the enemy. Like his father, Walt channels his various insecurities into aggressive over-confidence, but something is lost in the translation between generations. Walt really believes he can get away with impressing his classmates by playing a Pink Floyd song on his guitar and passing it off as his own; he really believes he can impress a girl by calling The Metamorphosis "Kafkaesque." His father/mentor, meanwhile, is painfully in touch with the failings both are dancing to cover up.

Meanwhile, Frank gravitates towards his mother, but not a little uneasily: he develops a kind of sexual psychosis that Baumbach, an incredibly literate filmmaker, has the good sense to explain without words. Squid's most striking image is the repeated motif of Kline (though 13, he looks a good two years younger), shirtless, watching himself swig cheap canned beer in front of a mirror. If this is his idea of manly freedom, no one's quite sure where he's getting it – for all of his hirsute bluster, Bernard's most effective method of asserting his masculinity is to dismiss A Tale of Two Cities as "a minor work" over a glass of Cabernet.

It's the kind of move best practiced on sexually precocious undergraduates, and Bernard finds the perfect audience in Anna Paquin's Lili. Paquin (the sole Oscar winner in a film that could potentially draw award attention to nearly every member of its cast), has essentially been asked to reprise the poetry-spouting vixen she played in Spike Lee's The 25th Hour (except with the bad rave slang thankfully excised); if she's starting to get herself typecast, it's only because nobody does the too-smart-by-half cocktease act better.

The Squid and the Whale gets the discomfort of being a kid with warring parents exactly right. Before the split, it's all late-night screaming matches, some of which break through bedroom doors and turn sleeping children into unwitting accomplices. Post-divorce, life morphs into a jumble of unfamiliar subway stops, insufficient new bedrooms, unwelcome parental lovers, and breakneck fits of frustration. It's gut wrenchingly awful to slowly realize that the people who made you are no longer in love. It's even worse when you start to understand that maybe it's better that way.

Baumbach most recently collaborated with Wes Anderson on the script for The Life Aquatic, and you can see where the two filmmakers might have left a mark on one another. Anderson's latest film had an undercurrent of exquisite darkness to it; for the first time, instead of exploring the tenuous ways in which people come together, the director seemed suddenly bowled over by thudding realization that most of us spend most of our lives feeling in some way apart from the ones we love. That undercurrent rises to the level of pretext in Baumbach's film, and that's a good thing: the witticism and whimsy that he and Anderson share a fondness for fights for airtime from under the cover of matter-of-fact anomie. Whereas a typical Wes Anderson film cloys with all its cutesy detail, Squid leaves its indulgences to character-bound linguistics. It's rougher and realer, but ultimately a less cynical film than anything Anderson's made since Bottle Rocket. It's a lovely thing to sit under the spell of, even when its teeth are out.