Archive for Divorce and Money

Divorce Is Different On Rough Economic Seas – How a Recession Affects Divorce

If another recession is looming in 2019, it could greatly affect decision making during a divorce.
If another recession is looming in 2019, it could greatly affect decision making during a divorce.

It has been nearly a decade since the Great Recession. Since then, the U.S. economy has rebounded and then some. Unemployment is at record low levels, and people were finally starting to breathe easier about their financial circumstances.

But economists will tell you that recessions are cyclical and follow periods of strong growth, like the one we have recently enjoyed. It is likely another recession looms ahead. It could be mild or it could be more serious.

During the last recession, so many couples came to my office making decisions about their divorce to try and avoid financial hardships.  Divorces during a recession can be different.  Here are some thoughts based on my experiences.

Financial Strains Make Decisions for Divorce During a Recession More Difficult

Unemployment puts a tremendous strain on any marriage. Often it was the catalyst or the “final straw” and divorce was the result. Divorce itself is financial straining. Add a recession to the mix,  and the circumstances were catastrophic for everyone.

First, homes and other real estate had lost value. It meant in many cases couple had negative equity – they owed more than their real estate was worth. Sometimes people could afford a buy out allowing them to keep the house if credit was available. But in the last recession, banks became stingy about lending. People simply could not get loans to refinance the house.

So there were many couples who made the decision to defer sales—meaning they co-owned their real estate until a later time. Divorcing couples might even choose to live together in the family home even after legally divorcing, because there was no other option without losing money on the sale.

If a couple couldn’t make any of these options work. the alternative was to sell the home in a bad market. When this was the last resort, there were many short sales.

Others suffered from foreclosures on their property. Often bankruptcy wasn’t far behind.

Kids Take A Financial Hit

Couples would disenroll their kids from private schools, or take them out of expensive extracurricular programs like sports or music to save costs.

Health insurance was a big deal. If a spouse lost work and lost health insurance coverage from their former employer, couples might end up bearing the cost on their own, putting strain on their family. Sometimes a spouse in the role of full-time parent was counting on healthcare coverage from the working spouse. But after a divorce during a recession, they would face being cut off.

People who divorced prior to the recession suddenly found themselves unable to pay their monthly support payments, and would fall behind. The ex-spouse and the kids suffered from losing the income. Tensions would flare and fights over money would affect co-parenting relationships.

Gray Divorce Offers Unique Financial Issues

Divorcing close to your retirement date introduces new considerations, especially in tough economic times.

For divorcing couples close to retirement, which started being referred to as  “grey divorces,” their retirement accounts including IRAs and 401(k)s tanked right before they had to count on them for income. This is hard enough when married, but when a couple splits up in their 60s or 70s, the financial hit is devastating. There wasn’t enough time to recover before retiring.

It’s hard to determine whether divorce rates increased or decreased during the last recession. One theory is that financial strains on marriages caused more couples to divorce. But it’s also possible some people chose not to divorce during a recession because they just couldn’t afford it.

Impact of Impending Recession on Your Divorce

It’s my belief recession is inevitable, and not too far off. For couples contemplating divorce during tough financial times, economic decisions will affect many aspects of their lives during a divorce.

Divorce is hard enough on a family. Divorce affected by a financial recession is even worse. If divorce during a recession becomes inevitable, people can lessen the financial burden by pursuing mediation and other no-court options.  These options give people the opportunity to divorce for less money.  They also allows couples to find creative solutions when dividing financial assets, figuring out ways to pay for their children’s education, or preserving retirement funds.