With home sales down, prices declining and the Federal Reserve slashing interest rates to spur sluggish growth, the economic downturn in the United States is causing another issue at home -- the potential to make divorce settlements even more difficult, according to financial planners.
A depressed economy makes it harder for couples getting a divorce to split their financial assets, said Barbara Shapiro
, vice president of HMS Financial Group in Massachusetts and regional director of the Institute for Divorce Financial Analysts. “They have to be more creative than they might have previously,” Shapiro said. ”It was tough to make ends meet in the good times in one household, it's going to be impossible to make ends meet in bad times in two households.”
If the economy falls into a recession, dividing assets will be even tougher, Shapiro said. “Things just get worse. People’s jobs become more tenuous,” Shapiro said.
The changes in the economy have a domino effect, she said, leaving only the super rich unaffected. What makes asset division difficult in financial times such as these, Shapiro said, is that the interest rates tend to influence so much of a couple’s financial standing. When interest rates on investments decline, those who live off of their portfolio’s interest find it more difficult to get income-producing investments without big risks, she said.
Refinancing a mortgage is a common solution during a divorce settlement, Shapiro said. But it is also becoming challenging to refinance a house when a couple needs to take one spouse off the deed. Even those with good credit are having struggling finding financing, she said. “They have to be more creative than, ‘Okay, I’m going to buy you out, and that’s the end of it,’” Shapiro said.
That may mean keeping a spouse in the house until it is a better time to sell of refinance. It may even mean postponing financial settlements until interest rates improve, she said. Couples should plan ahead and be practical about their divorce settlements, Shapiro said. Try to think of new solutions to potential financial deficits, she said.
“Come up with some ideas that will work with everyone,” Shapiro said. “The last thing that someone wants to happen is to commit to something, then find themselves behind the eight-ball and be unable to fulfill their promises.:” DELAY DIVORCE OR NEGOTIATE LOSS
The choice for some couples may be to delay the divorce or find a way to share in the losses that a settlement may bring, said Glenn Bishop
, a certified divorce financial analyst in Texas. He has a client who is trying to decide whether to sell her business with her husband and take the loss, or if they should divorce, but continue to run the business together. He said his client is leaning toward keeping the business intact for the time being because she is confident that the economy will be on the upswing soon.
But the situation requires couples to choose between their personal wants of ending their marriages and the financial reality that now may not be the time to divide their assets, he said. As the economy remains at its current levels, or even pushes through into a recession, the landscape of divorce will change, he said. “I think it will certainly continue to make people think twice about the divorce process, and I think at the same time it will make them look at structuring the settlements differently to make them more shared,” Bishop said.