New York Divorce Report - New York's Divorce and Family Law Blog

Time Magazine questions, Will the Economy Kill Your Marriage?

A couple of weeks ago, I noted that as the economy worsened, my practice became busier. Time seems to confirm my observations and even offers some possible explanations for this phenomenon:

There's the lawyer theory, that money provides the soft fatty tissue that insulates the marital skeleton; once it's cut back and people get a good look at the guts of their relationship, they want out. And there's the marriage-counselor theory, that couples who were never quite on the same page in the checkbook finally get pushed off the ledger by endless bickering over their dwindling resources. And the therapist theory, that financial worries cause stress, stress can cause depression, and depression is a total connubial buzz kill.

The article notes that the recession affects the upper and middle classes differently. For the wealthy, the recession offers an opportunity to end the marriage at bargain basement prices as property will be distributed at lower valuations. The article points to the case of Summer Redstone to illustrate this point:

Sumner Redstone filed for divorce on Oct. 17, when his more than 16 million Viacom shares were at $18.85, down from $39.40 six months ago; his CBS shares had dropped about $288 million in value in the same period. . . Mrs. Redstone divorces a poorer man than she would have six weeks ago.

For the majority of the population, the principal marital assets, the 401(k) and the marital home have lost much of their value. Without equity in the marital home and encumbered by substantial credit card debt, the parties are oft left to fight about who gets stuck paying the bills. In some cases, unable to distribute the debt or sell the marital home, the estranged spouses are forced to become unwilling room-mates.

To put the recession and divorce in perspective, I am reminded of the punch-line of a bad joke –where “Pat” complains that the recession is worse than divorce. Pat, continues, “I lost half my assets but I still have my spouse.”
 

I read an interesting article in Sunday’s Times about how the credit crunch has resulted in more people borrowing money from their friends and families in order to purchase a home.   There is really nothing new about this phenomenon.   Parents have long gifted or loaned their children money for a home down-payment. 

There is also nothing new about the myriad of problems that arise when the parties divorce.  Since the down payment generally represents a significant portion of the marital assets, all involved, husband, wife and their parents, may claim the down payment to be theirs. 

The threshold question is –was the “advance” from the parents a gift or a loan?  If it was a gift, was it a gift to one or both of the parties?  

One of the parties may claim that the “advance” from his/her parents was a loan, which must be repaid when the marital home is sold.   In such case, inquiry must be made as to whether there was there a note or a mortgage?   Was there any documentation or acknowledgment of the loan?  Were there any loan payments made during the marriage? Was interest on the loan declared as income?     

In the absence of a writing or loan re-payments it may be hard to prove that the advance was a loan.   The fall back position is generally that the advance was a gift  to only one of the parties.  Assuming that the gift was made by check, the face of check should be determinative-(i.e., a check to Mr. and Mrs. Jones is a gift to both parties but a check to Mrs. Jones may be a gift to only the Wife).   

 Many lenders require a “gift letter” confirming that the down payment was a gift, not a loan.  This letter certainly may of value in determining purpose of the advance.  Likewise, did the gift trigger the filing of a gift tax return?   

In order to avoid future disputes, when the home purchase is made, there should be a writing, signed by all involved, clearly defining the terms of the transaction, identifying it as a loan or a gift, and, if it is a loan, setting forth the payment terms. 

In writing this blog, I always find it interesting to observe which articles are most viewed. Over time, I have observed that the articles I’ve written about broken engagements and the return of engagement rings are quite heavily trafficked.   So then, it came as no surprise to me that the New York Times contained a fairly comprehensive article about If Things Fall Apart, Who Gets The Ring?

While the law in New York regarding the return of engagement rings is well settled, the article points out that there is no uniform national rule about the return of engagement rings if the couple fails to marry.  

Most states, New York included, follow the rule that: 

. . . in recent years courts have almost always held that the ring goes back to the buyer, no matter the circumstances. The premise is that the engagement ring is a conditional gift — the condition being that a marriage take place. And if it does not, the agreement is rendered null and void. Furthermore, courts have ruled that it does not matter who broke the engagement, the donor or the recipient.

In New York, the exception to the to the rule is that if the man is married when he proposes and gives an engagement ring to his second bride-to-be, he cannot legally contract to marry. If the second marriage does not take place, he does not get the ring back.

For those who care, the law may be different from what is good etiquette or chivalrous. According to the article proper etiquette dictates that:

. . . the person who breaks the engagement is responsible for making good. “If the woman breaks it, she should send the ring back immediately,” Ms.[Letitia] Baldrige said. “If it is the man, he should say, ‘Of course you keep the ring.’ ”

As for the laws of chivalry, Raoul Felder questioned “I can’t understand how a man is not embarrassed to ask for his ring back. It always amazes me what happened to chivalry.”  

I wonder if Mr. Felder represents only women or, if he represents men, does he advise them that though legal entitled to the return of the engagement rings, they should not seek to recover it because they are being un-chivalrous?