Divorce and Low Home Equity in Bad Economy
Lower House Values, Couples as Roommates, and Finding Solutions
Jun 30, 2009
Divorce, plus low home equity, equal one big problem in a bad economy. Here are some of the issues involved when house values are down. Husbands and wives should talk to their lawyer or financial planner for solutions.
Divorce Can be a New Start
Divorce is traumatic, and getting a divorce with low home equity (or negative home equity) can be even more of a headache. But, once a man or woman has gotten through this, it is a great time to start a new life. And, a new start is a gift.
Talk to an Attorney or Financial Planner
Even when it seems that there is nothing to divide but bills, there is usually a good solution to consider. It is, however, almost impossible to get great, specific advice from TV, the internet, friends, or family because:
- Divorce laws are different for each state.
- Divorce laws may change over time.
- Each divorce is unique and based upon variables such as duration of marriage, number of children, age, and other factors.
On the other hand, the internet is a great resource for looking up divorce info in order to prepare a list of questions and concerns to discuss with an attorney, financial planner, or other professional. Online sites are also helpful for learning some of the legal terminology used in one’s specific state.
Lower House Values
There are estimates that one in six homes is now worth less than the mortgage owed on it. A few years ago, husbands and wives fought to “win” the home in a divorce, but now, no one wants to get “stuck with the dead cow,” according to Gary Nickelson, President of the American Academy of Matrimonial Lawyers, in the December 30, 2008 New York Times article "Breaking Up Is Harder to Do After Housing Fall", by John Leland.
This same New York Times' article talks about a couple, who owned:
- A million dollar home near Atlanta
- Another home in Jacksonville FL
- Several investment properties.
In June 2008, their marriage was doomed, but their finances looked rosy. Six months later, there was little, if anything, to divide.
They were a smart couple, with a good work ethic, trying to get ahead in life. Then, they got wiped out, just like a lot of other good people trying to build the American Dream.
Divorce and Low Home Equity (or Negative Home Equity) in a Bad Economy
Many times the family house no longer counts as an asset. If a home’s value has fallen below the amount owed on the mortgage, the house has become a liability. And, it may be even more of a liability down the road, if prices don't turn around.
When both spouses want to get rid of the house, the situation is often better than if one spouse wants to keep the home. This is because it is difficult to refinance the mortgage, so that one spouse has sole ownership. If property values continue to slide, there is the added pressure of time. Talk to a real estate agent, financial planner, or lawyer to get information.
There are too many decisions for most people to make without professional help:
- Sell Now?
- Make repairs?
- Wait until the house is sold before divorcing?
- Live together, while legally separated, to sell house?
- Get divorced, keep the house, and make the upstairs a home for dad and the downstairs a home for mom?
Also, it is generally assumed that a house, being sold during divorce, will fetch a lower price, as buyers wait for the divorcing couple to be forced up against the wall. Information about neighborhood trends usually comes from real estate agents or house appraisers. Try zillow.com is for preliminary research.
Spouses Need to Get Along
Even professionals are in the same boat as everyone else. In the article at MSN Real Estate, "Broken Homes, Unwanted Houses" September 8, 2008 by Elizabeth Razzi, there is a story of one woman, a financial planner, who was divorced two years prior. Her husband got the vacation home, which he sold, and she got the main residence. She couldn’t sell it. The house is now rented, but the ex-wife has to make payments.
Fortunately, this woman gets along with her ex-husband, so he has not forced her to refinance, by insisting she take his name off the mortgage. This has allowed the ex-wife to keep the 4.8 percent fixed-rate mortgage, obtained while married.
Women who want to keep their home should look seriously at the monthly expenses before talking to their lawyer or other professional.
Husbands and Wives: Couples as Roommates
Some couples can’t afford to divorce. They end up living like roommates, though staying married, or they end up living in the same house after the divorce. It's not the best option, but one must do the best one can. And, maybe reading about these difficulties will cause some couples to find a way to make their marriages work. Either way, there is hope that the problems will straighten themselves out when two people are mature enough to get over their bitter feelings.
Information from this article is not intended to be a substitute for advice from a lawyer, financial planner, therapist, or other professional. Please consult a lawyer or other professional for specific advice.
Resource:
Carney, Mike. "Divorcing Spouses are Reluctant Roomies". USA Today. August 11, 2008.
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