As economy rebounds, so does divorce

In 2009, family law practitioners were worried. The phones were quiet and new clients were walking through the door with less frequency.

The Great Recession was so bad, couples were actually waiting to divorce. With 401(k) plans and stocks low and some houses so underwater they were basically upside down, even the most incompatible couples could not afford to establish two separate households.

“One would think divorce filings are counter-cyclical with the economy — that when the economy is worse, divorce goes up,” said Karen L. Sendelbach of Nichols, Sacks, Slank, Sendelbach & Buiteweg PC in Ann Arbor, MI. “But the truth is that, when people are feeling more financially secure, they feel more comfortable making big changes.”

Lansing, MI-based Natalie Alane of Alane & Chartier PLC had clients remain under the same roof during the pendency of their separation — and sometimes even after the divorce was final. “It used to be that once a client filed for divorce, they were out of there,” she said. “But people were trying to stick it out to save money.”

Now, approximately four years later, things have improved.

“What was noticeable was a real lack of liquidity and a lot of people had homes under water,” said Mark Bank of The Law Firm of John F. Schaefer in Birmingham, MI. Now, liquidity has increased and real estate is “less and less of an issue,” with more houses closer to the break-even point, he said.

The state of affairs has not returned to the pre-recession situation, however. Real estate is still presenting challenges, and the shaky job market is leading to a variety of post-judgment motions on issues like parenting schedules and support payments.

The challenge of real estate

Traditionally, divorcing couples relied upon home equity to finance their divorce. But a tough housing market changed that. For divorcing couples, “the biggest concern was the marital home,” Alane said.

Options were limited. When values dropped, many houses were over-financed. And banks were extremely reluctant to let a couple refinance to remove one of the parties from the mortgage, given the uncertain job market.

“The housing market required attorneys to be much more creative,” Sendelbach said.

Some clients had more options than others: if the house wasn’t too far under water, she would suggest selling without a Realtor; not having to pay a commission might be enough to scrape by.

In other cases, the parties could negotiate a deal where both assumed some of the risk. Alane had a client who remained in the marital home with the couple’s children. The husband moved out but helped with mortgage payments, and the parties agreed in their separation agreement that in seven years — when the youngest child graduated from high school — they would put the house on the market. By that point — fingers crossed — the real estate market will have improved even more.

Banks have varying policies, making counseling clients even more challenging, noted Carol F. Breitmeyer of Breitmeyer Cushman PLLC in Detroit. For example, if a husband moves out but keeps his name on the mortgage, some banks will allow him to then take out a mortgage on a second residence. Others, however, will require that his name be removed from the mortgage of the prior marital home before they will extend more credit.

Most banks absolutely refused to allow mortgagees to take on two mortgages over the last few years although some are loosening up a little now, Breitmeyer said.

“I talk with clients about renting,” she added. “Not every person needs to own a house, and as we’ve seen, it’s not the greatest investment. Renting is not such a terrible thing, and it’s a conversation worth having with clients.”

Clients unable to sell a home or refinance the mortgage sometimes chose to remain living together — and yet apart.

Couples living at the same address could divorce with corroboration that their lives were “separate and apart” — not sharing the same bedroom, for example, or going out as a couple. Affidavits from the couple as well as sworn statements from witnesses — sometimes adult children or family friends — would satisfy the standard.

“I had several clients that ended up living with their ex after the divorce was over,” Alane said.

She also saw an increase in “nesting,” where the spouses keep the marital home and get a very inexpensive apartment. The parties then rotate between the two locations, essentially sharing both spaces.

“It takes a very good relationship and a lot of trust and respect, but the financial detriment is modulated because of the inexpensive housing,” she added.

A practical perspective

Real estate hasn’t created the only problem area for practitioners.

Post-judgment motions are on the rise as the employment status of spouses has changed. With a job loss, a payor spouse may seek to reduce support payments, for example.

“We’ve had a lot more difficulties with co-parenting schedules because so many more parents have taken jobs out of state,” Sendelbach explained. “It’s pretty easy to craft a good parenting schedule when the parties live close to each other.”

In Ann Arbor, MI, the closing of Pfizer resulted in many employee transfers or moves out of state, which has complicated parenting schedules, she said. Similar problems occurred in other parts of the state, where automotive companies closed shop and employees were forced to seek jobs elsewhere in the country.

Alane noted that clients experienced a rise in bankruptcy-related issues as well, which often necessitated collaboration with a bankruptcy attorney.

“There are implications about whether a couple should file divorce or bankruptcy first, and whether they should file for bankruptcy separately or together,” she explained. “We definitely had more clients exploring these issues and filing for bankruptcy.”

Sendelbach agreed. “I had one client who worked for the same company for 17 years and was prepared to take on the house, which was under water,” she said. “But then she lost her job with no severance and no package. Now there are a lot fewer options for that family.”

The economic downturn also had practical implications for the practice of divorce.

“Litigants handled much more of their cases on their own rather than turning it over to lawyers,” Sendelbach said. “Clients were much more critical and aware of attorney’s billing statements, and there was much more competition between attorneys,” with attorney shopping before a client made a hiring decision.

Clients also were more open to using alternative dispute resolution like mediation or collaborative methods, she added, viewing the cost of litigation as unaffordable.