Divorce in a Recession

There is light at the end of the tunnel, and it isn’t a train. That is what I have frequently told people going through a divorce. Times have changed, however. It may not be a train coming at you in a divorce, but it is probably a house stuffed full of refinanced credit card debts. nnJust as recently as a year ago, you didn’t have to be rich to make out okay in a divorce situation. You just needed the ever-growing equity in your house. A typical split used the house as the parties’ personal piggy bank. While I have never claimed to have been able to predict the future, many people wanted the house because they knew that it was going to go up in value forever. The other party who didn’t get the house wanted their cash out of the home, which was fairly easy to do when banks would lend money to almost any mammal with a pulse.nnMy oh my, how things have changed. For the first time in decades the house (a/k/a the piggy bank) is often considered to be a debt and not an asset. Remember those three rounds of credit card refinancing that you did? Remember how you justified subsidizing you lifestyle with the equity in your house because the equity always went up and you could always write it off on your taxes? In a divorce situation, that Mexican dinner you charged five years ago is now going to come back as a bad case of financial indigestion.nn“We owe more than the house is worth and we can’t support two households on our incomes,” is the comment I am more frequently hearing. Other than winning the lottery, your options can be limited. There is a short sale, where the house is sold for less than what is owed, and the bank accepts the sale as payment in full. You could also stop making payments on the house. In Washington State, the foreclosure process will typically start after you are three months in arrears, and will be completed six months later. Most of the time, the bank will do a non-judicial foreclosure, which means that there will be no judgment against you. The other option is bankruptcy. All of these options will adversely affect your credit. And, bad credit can adversely affect your ability to rent an apartment or get a job in the future. nnIf you can afford to stay in the house, then you and your spouse can treat it like a debt to be divided in the divorce. If the house is worth $10,000.00 less than what an appraiser says you could sell it for, maybe your spouse will agree to pay $5,000.00 of this debt.nnAs devastating as all of this may be, you will survive. I know that doesn’t sound too encouraging, but it is true! When I think back to my clients from 22 years ago who went through this process, they all survived financially and emotionally. Most worked diligently to rebuild their credit. Many started receiving credit card offers within two to three years. All of them shrugged that it wasn’t as bad as they thought that it would be. After all, this is the United States and we don’t have debtor’s prison. You are legally entitled to make a financial fresh start, through bankruptcy if nothing else. All of the people I saw go through this process not only survived, but they moved on with their lives to bigger and better things. One person I know not only lost the house, but lost their car. The low point was when they called the loan company to come pick up their car because they couldn’t make the payments. Now, many years later, they own a successful business with a dozen employees. They survived, they rebuilt, and they thrived. Looking back, do they wish that they had still stayed in their marriage and their house? Absolutely not!nnIf you have to get divorced in this economy, I am not telling you that it is going to be easy. You can do it, however. Weigh what you stand to gain long-term, against what you stand to lose. Only you can make the right call. Just remember, you will survive and better days are ahead of you.n