Hard Times and Bad Divorces

"The only people who are selling now are people who have to sell, such as people going through a divorce. And I sure don't envy them".
(Neil Brooks, Phoenix real estate broker, as quoted in the Arizona Republic)

When I was a mediator for the divorce court in Phoenix, real estate prices seemed to be rising by the minute. The only divorcing couples who didn't have substantial equity in their homes were the ones who had gone crazy on home-equity loans or lines of credit, and had blown the borrowed money on luxury vehicles, expensive vacations, and the like. Just about every other couple could either sell the marital home and split the proceeds, or figure out a way for one spouse to buy out the other's equity and remain in the home. They at least had something to start a new life with.

Although divorce mediation is never an easy job, it's always more pleasant when there are profits to be divided rather than debts to be apportioned. When you combine the inherent psychological stress of divorce with the very real prospect of financial disaster, you have a situation that brings out the worst in people. Each spouse is convinced that it was the other one who got them into the mess they're in. "You're the one who wanted that damn house, not me". "What do you mean? You're the one who was always bitching about the bathrooms being too small in the old house".

Assigning blame is all-too-human, but it's a colossal waste of energy. And focusing on the past won't clean up the mess. If you're convinced that you want a divorce and you want it now, you're probably going to take a major financial hit. There may be little or no equity in the house; there may even be negative equity. Your credit rating may take a nosedive, which will not only make purchasing another home difficult, but can bump up the interest rate on your existing credit cards, even if you've never missed a payment. On top of all that, who knows if your job will still be there in six months---or six weeks?

Unless your marriage is truly intolerable, or unless your spouse is a compulsive spender or degenerate gambler, maybe you should hold off on divorce. Divorce is always expensive, even in good economic times. When the same income that was barely enough to keep one household going now has to pay for two of them, something has to give. When you add to the mix the lawyer bills, the court costs, the real estate broker fees, and the moving costs, you're flirting with bankruptcy or even---in an extreme case---homelessness.

Maybe you should ride out the bad times together. You'll not only avoid having to sell in a free-falling market, you'll have a common purpose. Instead of it being the two of you against each other, it will now be the two of you against the world. You can try, maybe for the first time, to get a grip on your spending. You can get in the habit of celebrating little victories, such as keeping that old car running another year, or getting another season or two out of your clothes, or finally paying off that high-interest credit card. You can learn not to keep harping on past spending decisions, no matter how unwise they may seem today.

Of course, breaking old habits is never easy. The old way of doing things---the way that led to the current crisis---will have to be changed. Priorities will have to be set. Spending limits will have to be agreed on (or, if necessary, imposed). It will be tough for a while, and it will take unending co-operation and good will. But co-operation and good will may be exactly what your marriage has lacked.

Give it a try. If it works, you may never have to think about divorce again. But even if, down the road, you do decide to go your separate ways, you'll have a much better chance of starting your new lives on a better financial footing, and of knowing how to avoid similar problems in the future.