The New Normal

Hi there,

We don’t live in a vacuum and what is happening in the global economy affects all of us (think of your 401K’s roller coaster ride this year).  If you are divorcing, you, your counsel, and hopefully your financial advisor, should be thinking about what nasty surprises may be in store as a result of the economic decisions you are making now.

You should try not to put all of your eggs in one basket (I have been dying to use that mega cliché). It used to be that it was considered economically OK to keep the marital home in exchange for your spouse getting pension assets. Not so much anymore.  Marcelle Sussman Fischler writes in Forbes that the house is a “hot potato.” There are few teeth left to the old argument that the house should be transferred in exchange for another asset when the equity in the house is negative.  Some folks are opting to hold on as joint homeowners for a few years in the hope that the market rebounds; this makes a lot of sense if you have kids in a school system, but it does tie you together.  It means you and your soon-to-be-ex will need to discuss and decide how to share repair expenses, payment of principal on the mortgage, sharing of tax deductions and how you will handle the practical details of selling it.

I am seeing appraisals of real estate come in much higher than what the parties think the market value really is.  In many cases it makes sense to sell and divide the equity.  If you choose to keep an asset at what you believe is an overvalued price, you are actually buying that asset for too much money.

Retirement accounts, while very volatile right now, are easier to divide in a crazy market as they are usually divided across all stock positions so both of you will gain or lose in similar fashion.  I recently wrote about Massachusetts’ new Alimony Reform Act, which makes clear that support ends at the payor’s retirement age.  This also makes the decision to keep the house while your spouse keeps the retirement accounts very problematic unless you are young and expect to have time to earn a decent retirement yourself.

Many people have vacation homes and these are also a problem, as the second home market has had as deep, if not deeper, decline than for first homes.  Second homes are a luxury that fewer people can afford, so fewer buyers are out there and prices are lower.  More grim reality: Often the vacation home is something neither spouse wants or can afford.  For divorcing folks, losses in the market will translate into realized losses as well.

Of course if you have assets you want to keep, like a business, that are depressed as a result of market conditions, then this is a good time to get divorced.

The current economy is nasty and that means you should get a financial advisor as well as a lawyer.  For many of you, your future will be determined by the asset choices you make in your divorce.