Tough housing market complicates divorce
Divorce is rarely an easy process. But falling home values and sluggish real estate sales are combining to make it particularly difficult right now.
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Couples aren’t fighting over who gets to keep the house. They’re scrambling to get away from the burden of it. It’s too soon to see the trend reflected in official statistics; the most recent marriage and divorce numbers compiled by the National Center for Health Statistics date back to 2005 — just when real estate markets started to turn down from their boom years. But lawyers and financial planners anecdotally say they are seeing more clients stay married — if only for the time being — simply because they cannot afford to break up.
“Truthfully, it’s a mess,” says Carol Chumney, an attorney who practices family law in Memphis, Tenn. “There are a lot of folks who want to get a divorce, and the house is an impediment because nobody wants it.”
House no longer counts as an asset
The tough housing market is hitting divorcing couples in several ways. If the home’s value has fallen below the amount owed on the mortgage, neither spouse wants to be saddled with that liability. If one wants to keep the home, it’s difficult to refinance the mortgage so the departing spouse can be cut loose from the debt. And evaporating home equity can take with it the means to pay lawyers for the divorce itself.
Dan Couvrette, chief executive officer of Divorce Marketing Group, a Canadian company that publishes Divorce Magazine, says he’s also hearing anecdotally that some couples cannot afford to divorce now. “One of the ways they pay their legal fees is by selling or refinancing their home, and selling the home is getting more difficult,” he says.
Bonnie Hughes, a Certified Financial Planner with The Enrichment Group in Miami, is living through the situation herself. Two years ago, when she and her husband divorced, he kept their vacation house by a Tennessee lake, and she retained their main residence, a 3,000 square-foot home in Chattanooga, Tenn. He was able to sell the house at the lake; she was unable to get rid of what had been the family home.
“Houses have become like hot potatoes.”
“I was planning on just selling it,” Hughes says. “I had already moved to Atlanta.” Even though the asking price is almost $100,000 lower than they had paid for it, the house in Chattanooga remains unsold at a list price of $329,000. “It’s in inventory with homes that are just like it,” she says. A renter helps pay the mortgage, but Hughes still has to contribute to the mortgage payment each month, even though she has moved on again, from Atlanta to Miami.
Fortunately, she and her ex-husband have maintained an amicable relationship. Although she pays the full amount, he has allowed his name to remain on the mortgage so she doesn’t have to refinance out of the 4.8 percent fixed-rate mortgage they had obtained while together.
Dumping the house on the ex
Of course, not all divorcing couples are able to get along well enough to minimize their losses in a depressed housing market.
“A lot of times both of them cannot agree on what to do,” says Chumney. “It can be a huge financial mess. In the past, a lot of times, folks wanted to keep the house, and lately, that’s not the case.”
Some spouses simply dump the problem — the home with a shrinking value — on their soon-to-be-ex. “They just leave,” says Chumney. “They move out and they’re gone.” The remaining spouse may have few options but to move out and try to rent the home, assuming that brings in enough to keep up with the payments. Or the home could be lost to foreclosure.
If left-behind spouses try to keep their homes, they face legal bills when they try to get the departing spouses to approve sales. “Every time your lawyer goes to court, you’re paying for the lawyer’s time, and some of these people don’t have the money,” says Chumney.