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Lousy real estate market makes it harder for couples to split

By SYLVIA ADCOCK, Staff Writer

sylvia.adcock@nc.lawyersweekly.com

The collapse of the real estate market and the effects of the recession have thrown the once relatively predictable practice of family law into turmoil, with attorneys having to learn new skills, work harder to calm down anxious clients, and even wait longer for payment.

The recession first showed its presence in the family law arena about two years ago in the form of a noticeable drop in the number of divorce filings. That’s not surprising considering that it can be expensive for one party to move out and maintain a separate residence for a year.

At one point, business was down at some firms as much as 20 percent, some attorneys say.

The volume has inched back since then. But the new reality of houses that don’t sell, drowning equity, looming foreclosures – not to mention job losses that may mean the main breadwinner is no longer winning bread – is creating big changes for family law practitioners.

It’s almost like having to learn a new specialty, some say.

“It’s presenting a whole new set of challenges, and we weren’t especially well equipped to do that,” said Lee Rosen, who practices family law with The Rosen Law Firm in Raleigh. “This is requiring us to relearn what we do. We have to be very creative.”

When the recession first took hold, the two big issues facing family law attorneys were the devaluation of 401(k)s, a crucial part of divisible martial property, and the tanking real estate market.

The value of retirement plans has increased somewhat, attorneys say, so that’s not the issue it once was.

“But the house problem is still a disaster,” Rosen said. “The issue is we can’t count on people being able to sell the houses. … Now, not only is there not a lot of equity, but we can’t even sell the house.”

“A second home in particular can be a liability,” said John Narron, who practices family law with Smith Debnam in Raleigh.

He said he might have a client who bought a beach house for $900,000, borrowing $700,000 to pay for it. Today that vacation home might be worth $600,000.

“That asset is now a liability,” Narron said. Instead of hearing, “I want the beach house,” neither party wants anything to do with it.

Clients, already involved in a painful situation, are under more stress than ever.

“The property just isn’t there to split up,” said Michelle Reingold Connell of Robinson & Lawing in Winston-Salem.

“When you can get the finances straight that usually alleviates the stress of the situation. Now you can’t even sit down and say, ‘You’re going to be fine, you’re going to have this much in support,'” she said.

Together but separate

Attorneys say they are also seeing a few more clients who are trying to push the envelope on North Carolina’s rules on legal separation.

Under state law, a divorce cannot be granted until the couple has been separated for one year and a day. But establishing a separate residence can be expensive.

“We get people saying, ‘I’ve been living in the basement,'” said Connell, who is chair of the N.C. Bar Association’s Family Law Section. “But case law doesn’t support that holing up in the basement – or any other part of the house – meets the definition of separation,” she said.

Patrick McCloskey of Gum Hillier & McCloskey in Asheville said he’s seen the same thing. “There’s this misconception that if people are living on different floors they are separated,” McCloskey said.

He said clients will tell him they can’t afford to move out. That’s when he tells them they have a decision to make about whether they really want to get divorced.

“They don’t want to hear that,” he said.

Rosen said the new realities are leading to agreements that allow for different contingencies.

“It used to be it was black and white. You signed the documents and divided the property. Now, we have to draft these convoluted documents with stages of disentanglement,” Rosen said.

Lawyers might have to map out plans for what to do if the house doesn’t sell in 18 months, whether it should be rented out, and allow for foreclosure.

Rosen said he believed the new reality is going to require family law attorneys to learn more about bankruptcy laws, reexamine what sorts of CLEs should be offered, and look at how they handle clients from start to finish.

“We used to be financial planners,” he said. “Now we’re debt planners.”

And Narron said another adjustment is that the clients often can’t pay on time.

“Two years ago, you could take out an equity loan and pay a bill. That’s not going to happen today,” he said. “We work with people, but for the most part, the lawyers are waiting to get paid – just like everyone else.”

One comment

  1. Problem is made worse by lousy attorneys who “transfer” property ownership by QCD, but do nothing to get the exiting spouse off the mortgage. Years later the ex who got the house doesn’t bother to pay the mortgage. Then, the other spouse finds himself in court vs the Bank, and has no security interest in the house.

    You end up with a settlement which is not equitable, not truly distributive,since it didn’t truly distribute the debt. I found out 5 years later our divorce attorneys put us in this situation, and now the Bank, is after me for $100,000 of debt my ED settlement says belongs to my now financially broke ex wife. Any reason why I shouldn’t sue the attorneys for legal negligence ?

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