Legal News Headlines

 
Copyright 2008 Dolan Media Newswires

 May 5, 2008

SECTION: NEWS

LENGTH: 1096 words

BYLINE: Correy E. Stephenson

BODY: 

Under the best of circumstances, divorce proceedings rarely are completely pleasant or smooth-sailing for a couple and their lawyers.

But in an uncertain economy and shaky housing market, divorce is becoming increasingly complicated.

"This is my 40th year in practice and this is unlike any time I can remember," said divorce attorney Henry Gornbein, a partner at Gornbein, Fletcher & Smith in Bloomfield Hills, Mich.

"The two largest assets in a divorce are typically the home and the pension," Gornbein noted. "The stock market has plunged, so 401(k)s are worth a lot less, and as for houses, we are having a number of cases where people have mortgaged their homes to the hilt and often have negative equity. "

Heather A. Cooper, a divorce lawyer at Cooper Ginsberg Gray in Fairfax, Va., agreed.

"The main issue in many of my cases these days is trying to deal with home foreclosures, which I never saw as part of my practice before," she said. The situation "is a complete 180 [degree turn]. It's easy to split up equity compared to splitting up debt. "

Barbara Handschu, president of the American Academy of Matrimonial Lawyers, said things are so bad some couples are hesitating before filing for divorce.

"Couples ... may be more inclined to try to stick [the marriage] out for a while," she said, unless there's a situation like domestic violence or child abuse.

The impact of economic factors on divorce cases varies depending on the local economy.

Handschu, who has offices in the economically depressed area of Buffalo, N.Y., said that locale has been more clearly affected than clients in her Manhattan office.

And James J. Gross, a partner at Thyden, Gross & Callahan, says he hasn't seen a large change for his clientele in the wealthy suburb of Chevy Chase, Md. - at least not yet.

But while he hasn't had to work with foreclosed properties, he has noticed a shift from splitting profit to splitting debt.

"There has been a downturn in the housing market, where we only used to see profit and houses would sell very quickly. Now we are seeing minimal gain or loss," Gross said.

 

Selling or sharing?

So far, the biggest impact of the slowing economy on divorce can be felt in the housing market.

For so many years, "real estate was considered a sound investment, and we almost always had equity to split among the parties," Gornbein said. "But now, prices are dropping nationwide, and we've been hit especially hard here in Michigan. "

Couples now must face the unpleasant task of dividing loss.

It's a common situation to find that neither member of the couple can take over the mortgage, Cooper explained, because each is unable to afford it on his or her own and re-financing has become increasingly difficult.

In some cases, he said, "the value of the home is ... less than the mortgage balance, and ... both parties have essentially abandoned the home. "

In those instances, the house is foreclosed upon, but the remaining shortfall must be divvied up among the couple. At the same time, both the husband and the wife are now incurring new housing expenses.

Sometimes, said Cooper, "We try to negotiate a short sale, or give it back to the bank and negotiate better terms. But it is becoming quite challenging, especially as housing values are dipping. "

Some couples try to sell their house, often with disastrous results.

Gornbein had a client who paid his wife $800,000 for her share of the home that they had purchased for $1.6 million 14 years earlier. After three years, the house still hadn't sold and the client decided to put it up for auction.

Disregarding Gornbein's advice to set a reserve, the house brought only $725,000 - a huge loss for his client.

"I see so many cases like that," Gornbein said.

Another option is to have one spouse remain in the house and put it on the market, then continue to split costs until the house sells. But given the sluggish housing market, only couples who can afford to continue their mortgage payments as well as have one spouse pay for new housing can consider this option.

Some couples are actually doing the unthinkable, Cooper said - divorcing and remaining under the same roof.

A couple facing a weak housing market and lacking the cash or good credit to qualify for a new loan or rental obligation may try to become roommates.

Some states explicitly provide for this. Virginia law permits a couple to get divorced but maintain the same address as long as they meet certain requirements - they can't go out as husband and wife and they can't share meals, for example.

"I am seeing this situation more and more often, and while it is the last thing these couples want to consider, sometimes there is financially no other option," Cooper said.

 

Layoffs may lead to support problems

While housing issues remain predominant, Cooper said she is also working on more cases where one or both members of the couple have been laid off, which has a huge effect on support obligations.

Gornbein said he is starting to see cases where one of the parties loses a job in the middle of the divorce, or suffers from a significant loss of income because of a change in a bonus or profit-sharing structure.

This means the division of assets may result in much smaller shares because of the decrease in the stock market, Gornbein said.

"If you are a Ford executive and participate in the stock purchase program and the value of that stock has plummeted," this decreases its overall value and means less for a spouse, he noted.

If the economy continues to decline, Handschu predicts an increase in requests to reduce support - especially spousal support, which generally gets cut before child support - and an increase in relocation motions, if one party loses a job and is forced to look elsewhere for employment.

"As the months progress, we'll be talking about these [types of motions] more and more," she said.

 

The debt divide

The result of decreased or no assets is that many couples must now divvy up debt.

Parties who have racked up credit card charges will have to negotiate who will be responsible for paying them off, Gornbein explained.

"If one person remains in the home, then debts for improvements to the home or things like appliances would stay with that person. But I've had cases where one person did a lot of shopping on eBay with the credit card. Who should pay for that?" he asked.

Cooper suggested using the factors applied in awarding to spousal support to argue how debt should be split.

Maybe it "should be taken into consideration that one party makes just 20 percent of the combined income but is saddled with 50 percent of the debt," she said.

LOAD-DATE: May 6, 2008