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Market slump makes divorce more difficult

Carol Lloyd
Sunday, April 6, 2008

Back in the days of the housing boom, I knew a couple whose marriage went sour, but they continued to
live together for years after their divorce went through. Turns out 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. Now,
ironically, the sharp downturn in the market is taking a similarly painful toll on couples who are breaking up.
It's not that they can't afford their next home but that they can't get rid of the old one. I have friends who
are taking turns living in their marital home even as they hope to sell it.

But in the new era of homes going stale in an oversupplied market and their owners going underwater on
their mortgages, this is but the tip of the domestic iceberg. 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," says 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." 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," explains 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 phenomenon of
cohabitation after divorce for the Web site www.firstwivesworld.com.

She told me that for most couples, living with an 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
says. "But for some people, all their savings are in their homes and with the house not selling, they have
no other choice." Her clients most affected by this trend are mostly seniors on fixed incomes who no longer
have family living in the area. But other lawyers suggested it also is 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 says, 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."
Strained situations Moschetti has seen another conundrum created by the meltdown - owners who owe
more on their homes than they're worth. "It's really challenging," he said. "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 said 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." Although selling
the house has always been a central part of the divorce process, the market 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 said. "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 says.
"There was always an argument about that - but other than that it was straightforward." Another option is
for one spouse to buy the other out. But what if neither person can afford that? Then a common conflict
arises: One person wants to sell at all costs and the other wants to hold the house until the real estate
market rebounds. Such arguments have put judges in the bizarre position of real estate analysts. "Courts
are not ordering properties for sale because of the market," explains Ruben, who says 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."
Complex division indeed, all the attorneys I spoke to bemoan the complexity that the condition of the
housing market has brought to divorces. In economic terms, a divorce is a dividing of the couple's jointly
held assets. Now many divorces are finalized before the couple sell their home. That creates 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 might be needed? 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."