Divorcing Your Spouse During A Recession
What do you need to know to negotiate your way through a divorce during times of increased economic pressure? In the current economic downturn, things have changed and not for the better. For some, retirement funds also had considerable appreciated value.
These two, the marital home and retirement funds were usually the major assets of middle class families. Until recently, after divorce mortgage funding was more readily available for the purchase of smaller replacement housing or to refinance the existing mortgage and remove the former spouse from liability on the existing mortgage.
Alternatively, one spouse might buy out the other, using a compensatory share of other assets, usually retirement funds. Further, joint credit card debt could be rolled over into separate accounts in the name of each former spouse, often with low teaser interest rates that helped with monthly cash flow. Of course, none of this was easy. Under the best of circumstances, few families could live at the same level, once they moved to two separate households.
Today, more couples are facing marital strife resulting from the financial pressures of higher property taxes, resetting higher mortgage payments, and higher costs of fuel, food and other living expenses. Credit card debt interest rates are climbing even for people who pay regularly each month.
Home equity loan interest rates are also increasing. Opportunities to refinance credit card and automotive debts into the marital home mortgage have all but vanished in many instances due to the decline in home values. This pressure adds to the existing relationship problems that families experience leading up to separation and divorce.
The bad news is that getting divorced is no magic panacea to relieving the financial pressures you are experiencing. In fact, you will also experience the added financial pressure of legal and court costs to reach the settlement, whether it is an agreement or a court ordered outcome, as part of your divorce. Both financial and emotional costs may be reduced by mediating rather than litigating your divorce.
However, if you cant afford to live now under the same roof, you should not expect that a Superior Court Judge or mediated agreement is going to be able to change the financial realities with a divorce judgment and property settlement agreement. You may replace the daily arguments about how to adjust spending and how to deal with creditors, with a court order or written agreement allocating those responsibilities between you and your spouse.
It may simplify some things when child support (if you have children), and alimony (in appropriate circumstances) become known and reliable quantities that allow you to plan realistically. But, most divorce settlements will not relieve you of obligations to your creditors. In a few cases, a settlement arrangement will provide for payment or refinance of debts and remove you from liability.
But, that usually requires an offset from other assets, assets like equity in your home which may have markedly decreased. The good news is that there are smarter and better ways to get through this process in times of financial distress. Here are some recommendations:
If at all possible, work together with your spouse, to face the financial difficulties, and work out a plan to deal with the existing household and family finances. This is not easy without help, especially if the last person you want to cooperate with/trust is your about-to-be ex-spouse. So use a professional to help.
Work with a mediator, a financial advisor, your accountant, marriage counselor or even a mutually trusted friend with the skills to make the best of your existing financial situation. Facing the realities is more difficult for some than others.
Running two households costs about 40% more that running one. So, you both have to cut back. Money is a complex emotional topic even when a relationship is fine and economic times are good. So, these will not be easy conversations and may well require several tries.
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