Is the Housing Slump Making it Easier to Divorce?

by : Aaron Dishon

We've all heard how the home-mortgage crisis in the U.S.has wreaked havoc in the real estate and banking industries, but now its affect is trickling down into other areas, such as divorce. With more and more consumers facing mortgage-payment increases, the number of foreclosures will likely climb even higher. The housing market slump is now having a major impact on divorce cases - not only how they're being handled, but the increase in the number of divorces being filed. The financial pressure that comes with an escalating house payment or a foreclosure may indeed be playing a role in breaking up marriages.

Many say it's too soon for a study linking divorce to the country's recent foreclosure woes, but most attorneys and real estate agents probably don't need a study to validate what we already know: the mortgage-industry crisis is causing an increase in the number of couples who are getting divorced. Real estate agents nationwide have seen the number of listings increase of which many are divorce sales.

In the last few months, median house prices saw their largest annual decline in nearly a decade, while sales for single-family homes nationwide dropped .5 percent with prices down 8.5 percent from a year ago, according to the National Association of Realtors. As shrinking home values, slow home sales and the credit crunch take their toll on American homeowners, splitting couples seeking to sell property are finding themselves in a tougher spot than ever before.

Because there is a whole new aspect of divorce that most couples never had to face in a flourishing economy. But, under the current market conditions, breaking up is harder to do than ever. Many divorcing couples are forced to live under the same roof because they can't afford to move on until their home gets sold. If a house doesn't sell, it can have a major impact on cash flow for child support, where people live, and on future taxes. Another problem being caused by the economic slump is owners who owe more on their homes than they are actually worth.

In many divorces, the family home is the biggest asset to be divided. When couples become involved in a divorce, the disposition of their home becomes the largest issue in the final resolution. In the majority of cases, the home (if titled in joint name) is considered community property and subject to equal division. Now, with the housing market in a slump, it is not uncommon for a house to remain on the market for a year, with not even as much as an offer. Many people are forced into 'short-selling' their home which results in little or no profit margin. Divorcing couples have a few different options for dealing with the house:

  • The spouses continue to co-own the house

  • One partner stays in the house and buys out the other partner's share

  • The spouses sell the house and divide the proceed

If a couple that agrees to split the equity in their home as part of a divorce settlement and it stays on the market for a long period of time, this limits their ability to go and purchase a new home. Rental property rates are skyrocketing and combined with the high cost of living expenses, couples are being forced to continue live in the same house, or one spouse may be stuck in the house with an overwhelming mortgage. Either situation makes it extremely difficult to move on with their lives and gain any closure. And, in order for one spouse to buy the other out, they have to be able to afford it, which many can't these days. So, the dilemma becomes that one person wants to sell at all costs and the other wants to hold the house until the real estate market rebounds. Once these arguments reach court, judges are being put in the position of becoming real estate analysts.

This leaves me wondering how much more complicated, stressful and time-consuming divorces will become - and I'm sure I'm not alone on this concern.