There has been much ado about the effects of the economy on divorce.
Those who need to sell the marital home to fund their fresh start may now feel imprisoned in their marriage. With greater frequency, those unable to sell their home are forced to continue to cohabit with their spouse.
The Daily News featured a story about when a couple cannot afford to separate for which I was interviewed. Follow the link to read the article.
Last week’s article in the NY Times about how difficult divorce has become as a result of the housing crisis has stirred up quite a bit of debate.
The Times notes that:
In a normal economy, couples typically build equity in their homes, then divide that equity in a divorce, either after selling the house or with one partner buying out the other’s share. But after the recent boom-and-bust cycle, more couples own houses that neither spouse can afford to maintain, and that they cannot sell for what they owe. For couples already under stress, the family home has become a toxic asset.
In LadyBlog Theodora Blanchfield opines that the difficulty in liquidating the marital home is a good thing. She writes:
. . . I think any other obstacle to divorce is actually a good thing. Combine that with the housing crisis, and you might actually have people thinking twice about buying a home they can’t afford or marrying someone they’re not in love with. For being a single girl living in New York City, it might be a little Pollyanna-ish for me to say this, but when I marry, it’s going to be forever, and when I buy a house it’s going to be something I can pay off before I die.
This is a wonderfully optimistic view when entering into a marriage or even when purchasing a home. However, when marital difficulties arise or when one spouse unilaterally decides that he/she no longer wants to be married, any barrier to divorce has the effect of imprisoning the parties.
One of the commentators to Ms. Blanchfield's post best sums up the short-sightedness of her reasoning that the present economic conditions are somehow good for marriage.
When my wife decided a year ago that, after almost six fantastic years, she’d rather not be married anymore, we decided to try and fix things. It didn't work, and the housing crisis hit. Now, although we have no difficulty paying our mortgage, neither of us can afford to move out.
I thought I was marrying for forever too, and three years ago our house looked like a pretty good investment. We got a fixed rate so we were never at any risk of foreclosure. Now I am stuck living in a house with a woman who no longer loves me.
Ms. Blanchfield ignores the simple fact that barriers to divorce do not compel a couple to resume any part of the martial relationship. The obstacles merely lock the parties in a dead relationship and prevent them from moving on with their lives. The inability to sell the marital home or to untangle their finances imprisons an estranged couple under the same roof. How is this a good thing?
Last week’s article in the NY Times about how difficult divorce has become as a result of the housing crisis has stirred up quite a bit of debate.
The Times notes that:
In a normal economy, couples typically build equity in their homes, then divide that equity in a divorce, either after selling the house or with one partner buying out the other’s share. But after the recent boom-and-bust cycle, more couples own houses that neither spouse can afford to maintain, and that they cannot sell for what they owe. For couples already under stress, the family home has become a toxic asset.
In LadyBlog, Theodora Blanchfield opines that the difficulty in liquidating the marital home is a good thing. She writes:
. . . I think any other obstacle to divorce is actually a good thing. Combine that with the housing crisis, and you might actually have people thinking twice about buying a home they can’t afford or marrying someone they’re not in love with. For being a single girl living in New York City, it might be a little Pollyanna-ish for me to say this, but when I marry, it’s going to be forever, and when I buy a house it’s going to be something I can pay off before I die.
This is a wonderfully optimistic view when entering into a marriage or even when purchasing a home. However, when marital difficulties arise or when one spouse unilaterally decides that he/she no longer wants to be married, any barrier to divorce has the effect of imprisoning the parties.
One of the commentators to Mr. Blanchfield’s post best sums up the short-sightedness of her reasoning that the present economic conditions are somehow good for marriage.
When my wife decided a year ago that, after almost six fantastic years, she’d rather not be married anymore, we decided to try and fix things. It didn’t work, and the housing crisis hit. Now, although we have no difficulty paying our mortgage, neither of us can afford to move out.
I thought I was marrying for forever too, and three years ago our house looked like a pretty good investment. We got a fixed rate so we were never at any risk of foreclosure. Now I am stuck living in a house with a woman who no longer loves me.
Mr. Blanchfield ignores the simple fact that barriers to divorce do not compel a couple to resume any part of the martial relationship. The obstacles merely lock the parties in a dead relationship and prevent them from moving on with their lives. The inability to sell the marital home or to untangle their finances imprisons an estranged couple under the same roof. How is this a good thing?
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.”
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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.
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.
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