New York Divorce Lawyer & Attorney : Clement Law Firm : Family Law Serving Manhattan, Westchester County, Brooklyn, Queens, Bronx, New York City

I was featured in an article on Forbes.com about divorce during the recession.

Quoting Billy Joel’s lyric, “They started to fight when the money got tight. . .”
I have definitely noticed an increase in work, telephone inquiries about divorce and even traffic to this blog as the economy soured.

My experience, according to the article quite explainable . “Recession has always been a factor raising divorce rates," explains University of Chicago Business School economist Gary Becker."

.

• Print
• Comments (1)
• Trackbacks

As part of a divorce, the marital home is generally sold. But, in view of the slow down in the home sales market, it is possible that the proceeds from the sale of a home may be insufficient to fully pay off the mortgages on the property.

In a prior post, I explored the option of retaining possession of the martial home to avoid selling at a loss. For some, this is simply not an option and the home must be sold. Most couples cannot or simply do not want to continue living together after a divorce. Many cannot afford to maintain the marital home on their own.

The New Jersey Law Blog offers great insight in dealing with the situation  when the sales price martial home is insufficient to satisfy the mortgage.

If the homeowner is unable to obtain a sales price which enables him to pay off all loans and closing costs, and he does not have the funds to make up the difference, then he may want to try to obtain approval from his current lender(s) to accept an amount less than the full amount due on its mortgage. For a lender, this may be acceptable to obtain repayment of a substantial amount of its loan and to avoid the costs and delay of foreclosing on the loan. This will generally mean that the Seller will not receive any funds from the sale of his home.

In order to obtain such approval from a lender - which may or may not be granted - the homeowner needs to contact his lender(s) to determine what information they will need to make their decision. This usually includes a financial statement of the homeowner, copy of a contract of sale, appraisal, and other pertinent documents. Generally, a lender will not consider approving a short sale without a clear economic hardship on the part of the homeowner and an existing default or pending foreclosure.

Until recently, forgiveness of a debt under these circumstances, could trigger a taxable event according to the IRS. This means that if a lender forgave a part of the mortgage debt by accepting a reduced amount in full satisfaction of the loan, then the amount forgiven could be deemed taxable income to the homeowner. This was so even though the homeowner received nothing from the sale. However, in December 2007 Congress passed the Mortgage Forgiveness Debt Relief Act of 2007. This Act amends the Internal Revenue Code to exclude from gross income amounts attributed to a discharge of indebtedness incurred to acquire a homeowner’s principle residence. The amount of the debt forgiveness can be up to $2.0 million. Thus, a homeowner is now able to sell his home for less than what is owed on it without incurring an additional tax liability. This exemption for forgiven debt, however, is only temporary and expires within three years.

• Print
• Comments (4)
• Trackbacks

They started to the fight
When the money got tight . . .
                Billy Joel, Scenes from an Italian Restaurant

With all the talk about recession and the fall-out from the sub-prime mortgage crisis, it is no surprise the telephones in most divorce lawyers’ offices are ringing off the hook. I have even noticed that the numbers of readers of this blog has dramatically increased in the last several months.

Jeffrey Lalloway in the California Divorce and Family Law blog notes:

The sharp downturn in the market is taking a similarly painful toll on couples who are breaking up. But now it's not that they can't afford their next home, but that they can't get rid of the old one. . .

"The housing market is having a major impact on divorce cases," said Stephen Ruben, a certified family law specialist in San Francisco. "If a house doesn't sell, it has a major impact on cash flow for child support, on where people live, on future taxes.

In the midst of the housing boom, when a couple divorced, the marital home was sold and the parties could simply cash out. The dispute was oft motivated by greed; each of the parties would argue to maximize his/her interest in the marital home and the size of his/her profit.

In the present economic environment, the marital home may still be sold, but if there is insufficient equity, the parties may be fighting how the loss will be split. As a result, instead of taking a profit at closing, the parties may argue about who will pay to cover the mortgage short-fall.

Mr. Lalloway notes that some couples, rather than taking the loss on the sale of the home, are forced to continue to live together until they can afford to sell the property. In other cases, one party gets the right to remain in the home.

Both scenarios trigger other considerations.   Parties forced to continue to live together, simply are denied the ability to get on with their post divorce lives. How possibly could you move on if your spouse is sleeping in the adjoining room?

Even if only spouse remains in the home, post divorce- the parties have to address:

• What will trigger the sale of the home?
• Who pays the mortgage?
• Does paying the mortgage increase the payer's equity?
• Who gets the mortgage interest deduction?
• Who is responsible for the maintenance and repair of the marital home?

• Print
• Comments
• Trackbacks (1)