The Recession, The Housing Crisis and Divorce

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?

To paraphrase another song, breaking up just got harder to do.

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