Divorcing in a Tough Economy
Key Points
  • When the economy is good, more people can afford to get a divorce. Splitting into two households is never easy, but more realistic when times are good.
  • Those couples that can survive staying together until an economy improves stand a much better chance of a better financial life post-divorce. Divorcing when it is not affordable tends to cause even more problems and bankruptcy comes a reality.
  • The marital home and retirement accounts are typically those assets with the most value and they often take the hardest hit during a recession.

According to the American Academy of Matrimonial Lawyers, the dwindling economy may have inadvertently saved the marriages of spouses who did not want their marriages saved. Many couples in failing marriages find themselves trapped in a darkly comic and ironic situation: money problems - the most frequent cause of marital failures - drove them to the brink, yet they cannot afford to divorce.

The Great Recession of 2008 may be the biggest contributor to this. In that year, divorce fell from a rate of 17 divorces per 1,000 married women in 2007 to 16.9 per 1,000 married woman, "evidence that the challenges of job losses, foreclosures and depleted retirement accounts may be driving some couples to stick together," according to W. Bradford Wilcox, director of the National Marriage Project of the University of Virginia.

Demographers note that both marriage and divorce rates "tend to fall when the economy heads south and then rise when good times return," and some contend that the decline reflects a dramatic increase in the number of people cohabiting rather than marrying.

And today - with nearly one in five homes worth less than what's owed on it (and often worth significantly less today than they were just four years ago) - even moving out becomes a financial impossibility for many. Even financially comfortable married couples may not have enough equity in the family home to afford to live on their own or acquire new residences and set up shop, so to speak.

In 2012, The Huffington Post, reported that for most people divorce is simply a luxury. Joy Joseph, a family law lawyer in White Plains, N.Y., said that in the last six years, she has seen a clear decline in the number of divorces: "For people of moderate means, the economy has had a big impact. It is very expensive to get divorced. Only a part of it is attorney's fees. The bigger part is that the assets are split or devalued in the process. Usually that's the house, in which they have very little equity. Plus there's the risk of losing the partner's health benefits. They're afraid to live uninsured. So, they cling to an unhappy marriage because they can't afford to leave."

The statistics support her observations: A new paper in the B.E. Journal of Economic Analysis and Policy shows that as unemployment rises, the divorce rate goes down: For every 1 percent increase in the unemployment rate, the divorce rate goes down by 1 percent.

In high conflict marital breakups - when a marriage fails because of physical or emotional abuse - staying together for the sake of money is not an option; it can be dangerous. The victim spouse should explore every available avenue because abusive marriages rarely improve. "Unemployment and financial hardship are likely to make an abusive situation even worse," says Dr. Nancy Molitor, a Wilmette, Illinois, clinical psychologist who works with couples.

In low-conflict breakups however - which are the case in two of out three divorces - violence is not the problem and the couple just mutually reached the sunset of their marriage, and some couples choose to wait out the economic slump. People who can still talk things out without anger or resentment can set up mutually beneficial, short-term cohabitation arrangements. Both spouses must remember that they must work together to hammer out the details and ground rules and do so knowing this is a preliminary to burying their marriage. In other words, they admit the eventual fate and make temporary living arrangements that can work for the both of them and their family.

When violence isn't an issue, enforced togetherness can be bearable. "I advise bringing in a neutral third party, such as a mediator, right away to reduce animosity and set ground rules for daily life," says Susie Duffy, an Orange County, California, marriage and family therapist and divorce coach. "Will you eat family dinners together or apart? Who will cook? Who does what chores? Who lives in which rooms? In a way, you're practicing for divorce."

Even in good times, arguing about money remains a good predictor of marital problems. In hard times, financial woes and worries devour couples when spouses blame each other for money problems often of their own making, and now difficulties made worse by circumstances beyond their control.

In boom times or now in a recession, divorce is not a magic carpet carrying people away from their debt, but in the Great Recession, which has devastated housing prices, some unhappy couples appear to be thinking twice and taking longer before heading for divorce. A divorce in today's economy happens on a terrain cratered by plummeting home prices, 25-year high unemployment rates, and staggering consumer debt.

An affordable divorce in the recession not only depends upon both spouses cooperating, but also on both realizing that the recession has called their hand, so to speak, and often cramped their options. One way or another, the two biggest assets divorcing couples divide - the family home and pensions - may well either lost value or been depleted as a result of the economic downturn.

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Suggested Reading
The Property Division Handbook The Property Division Handbook
This book will explain in detail the property distribution aspect of divorce and separation. It will focus on the rights each spouse has under certain laws, situations, and circumstances, and how the division of the property will be decided by the court or through negotiation.

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