Breaking up is harder to do

The housing bust's influence on divorce

Back in the days of the housing boom I knew a couple whose marriage went sour, but who continued to live together for years after their divorce went through. Turned out that the holy grail of stability wasn't their affection for one another, but a rent-controlled apartment. They simply couldn't afford to move on.

I wrote then about the way the white-hot real estate market was burning families going through divorces. Ironically, 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. A couple of friends are even trying to make splitting up their marital home more fair by taking turns living in their flat.

According to divorce lawyers, the quickly shifting real estate landscape is making breaking up harder to do than ever.

"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."

Post-marital cohabitation

Indeed, the mortgage crisis and moribund market have made for some strange bedfellows.

"There is a whole new aspect of divorce that most couples never had to face," explained Janell Weinstein, a partner in the law firm of Federbusch & Weinstein in New Jersey. "Many couples are forced to live under the same roof because they can't afford to move on until their home gets sold. This can go on for months or even years as the real estate market across the United States slows down tremendously. Homes that used to sell in weeks are now not moving at all."

This month Weinstein  wrote about the growing phenomenon of cohabitation after divorce for the Web site Firstwivesworld.com.

She told me that for most couples, living with your ex is a choice of last resort. "If you have a substantial amount of assets, then one person moves out. Some people are moving in with family members," she said. "But for some people, all their savings are in their homes and with the house not selling, they have no other choice."

The clients she's seen most affected by this trend are mostly seniors on fixed incomes who no longer have family living in the area. But other lawyers I spoke to suggested it also was affecting families with young children. "Kids add to the cost of everything," said San Francisco divorce lawyer Tilden Moschetti. "One person may feel like they can't just move into a studio because it's too small to house their kids."

Whatever the life stage of the couple, Weinstein said living together after divorce presents some difficult, potentially dangerous situations: "What if there's domestic violence going on? It can be very hard. We try to come up with creative solutions, but the fact is that it's not an easy issue for most couples."

Upside down

Moschetti has seen an equally challenging conundrum created by the meltdown: owners who owe more on their homes than they're worth.

"The biggest problem is that a lot of my clients have houses that are upside down," he said. "It's really challenging. Do you do a deed in lieu of foreclosure? Do you try a short sale? What if one person wants to keep living in the house? Who eats the cost?"

In places such as Contra Costa County, where homes are just sitting on the market, it's especially difficult. "It becomes so untenable," said Moschetti. "Something needs to change — someone needs to find a way to live in a studio, to make a change." But Moschetti imagines that his clientele are hardly among the hardest hit: "I'm seeing people who can afford to pay me. For others the situation is much more strained."

New face of divorce

Although selling the house has always been a central part of the divorce process, the new housing decline has changed the face of divorce. "A few years ago it took only a couple of weeks to sell the house, but now we have to write agreements carefully because we just don't know," Weinstein explained. "I've been practicing law since 1991 and this is the first time I've seen a situation like this."

Moschetti echoes Weinstein's frustration. "In the past, the hardest thing was picking a Realtor," he said. "There was always an argument about that — but other than that it was straightforward."

Some have noticed a trend away from selling the marital home and toward one person buying the other out. But what if neither person can afford that? Then a common conflict arises: One person wants to sell at all cost and the other wants to hold the house until the real estate market rebounds. Such arguments have put judges in the bizarre position of acting like real estate analysts.

"Courts are not ordering properties for sale because of the market," explained Ruben, who said that judges now routinely bring in real estate experts and analyze housing forecasts to decide whether to side with the spouse who wants to sell now, or the one who wants to wait for the market to improve. "We're seeing judges decide to wait, based on the assumption that the market will improve in the summer or fall. It's having a major impact on resolution of these cases."

Indeed, all the attorneys I spoke to bemoan the complexity that the new housing market has brought to new divorces.

In economic terms, divorces are a dividing of the couples' jointly held assets. Now, many divorces are finalized before the couple sell their home. That triggers a host of other potential points of contention: Who gets to live there in the meantime? Who pays the mortgage? Does paying the mortgage increase the payer's equity? Who gets the mortgage interest deduction? Who is responsible for a major repair that comes up in the meantime?

In the long run, judges seem to be assuming that the market will rebound. But what if it doesn't? For all the divorced couples who have put their lives on hold, continuing to share real estate based on predictions that just don't pan out, the phrase "a house divided" may assume a new meaning.

This prospect has left some lawyers wondering how much more complicated, stressful and time-consuming divorces will become. "It's going to be very interesting" said Weinstein. "I don't know what's going to happen."

From San Francisco Chronicle.

Comments

[Faith]

I was divorced in June 2007, I told my ex-husband I would pay him 8,000.00 out of the sale of the haouse and was unable to get the money out of it due to the market at this time. It has been one year and he now is filing a contempt, do you know of any help? I was lucky to even sell it.