Dumping the House after Divorce

    You've decided on a divorce. You're figured out how to split the money. But now the real estate market is putting a damper on the property settlement. When the market was booming, there was often a fight to keep the house. But today, with many houses sitting on the market for months, couples are fighting with their soon-to-be ex spouses about what to do to overcome the burden of their marital mortgage.

The problem began, according to California psychotherapist Tina Tessina, author of "Money, Sex and Kids: Stop Fighting about Three Things that Can Ruin your Marriage," after many couples took out equity loans on their homes during the real estate boom – when housing prices were inflated. They used those loans to buy luxury items they didn't need, she explained. And when they decided to divorce after the real estate, they get stuck in a financial pickle. Between the real estate drop and the loans, they're upside down in their house.

Divorce financial advisor Ginita Wall has seen today’s “phenomenon” in California in the early 1990s, when the housing market decline 40 percent between 1990 and 1994 and didn’t begin climbing again until 1996. “In many cases, it isn’t the marriage vows keeping people together, it’s the soft housing market,” Wall said. “The mortgage payment is high, equity is low or non-existent, and there’s no market if they try to sell, so they have to continue living together until things get better. Unfortunately, that doesn’t repair the marriage, so you have two increasingly unhappy people living under the same roof, since neither can afford the high mortgage payment on their own, and if they share the cost of the mortgage, neither can afford rent on top of that. So they split up the home, ala War of the Roses, or continue living in the house together, with tension mounting and often boiling over (increased stress and even domestic violence can result.)”

“The economy goes in waves like this,” she said. “Every boom is followed by a bust, because most people get caught up in the excitement, overextend themselves, and then have to pay the piper.”

So what can divorcing couples do when one of the largest assets in your property settlement becomes an albatross around your collective necks? “I advise all clients to sell or let they spouse stay if they can't afford to stay themselves,” said certified public accountant Noah Rosenfarb of New Jersey, who specializes in helping divorcing women with their financial concerns. “The tougher part is negotiating today's value -- even with an appraisal its hard to know if that's really what it is worth," Rosenfarb said.

California attorney David Pisarra said he’s got one divorce case in which a couple maxed out their line of credit to pay a mortgage on a house they can’t sell because of the real estate market slump. In another case, a client is maxing out her credit line “so that she can keep making mortgage payments while the divorce goes through and before the house is sold just to keep her credit.”

As the economic crisis deepens, California attorney Stacy Phillips gives this advice to married couples who are already financially struggling. "Couples should not take on a mortgage or any other debt that might create havoc in the relationship," she said. 

Phyllis Goldberg, Ph.D., a marriage and family therapist in Los Angeles, Calif., said financial problems can “exacerbate the pre-existing problems in a marriage.”  And that may be the straw that breaks their relationship -- forcing them into divorce court. "When there is not enough money to pay for the lifestyle in which the couple was used to living that can cause friction," Phillips said. 


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