Falling home prices haven’t just put a strain on budgets, they’ve put a strain on marriages- and divorces. No one wants custody of an underwater house:
With nearly one in six homes worth less than the mortgage owed on it, according to Moody’s Economy.com, divorce lawyers and financial advisers across the country say the logistics of divorce have been turned around.
"We used to fight about who gets to keep the house," said Gary Nickelson, president of the American Academy of Matrimonial Lawyers. "Now we fight about who gets stuck with the dead cow."
As a result, divorce has become more complicated and often more expensive, with lower prospects for money on the other side. Some divorce lawyers say that business has slowed down or that clients are deciding to stay together because there are no assets left to help them start over.
In a normal economy, couples typically build equity in their homes, then divide that equity in a divorce, either after selling the house or with one partner buying out the other’s share. But after the recent boom and bust cycle, more couples own houses that neither spouse can afford to maintain and that they cannot sell for what they owe.
Divorces are already plagued with the tension of a failed marriage, he said. Things get tougher when there are fewer assets to divide because people need that money to retire, make mortgage payments or pay off debt. Now that investments and stock values have crashed, a divorce leaves both parties with less money to meet their obligations — so they start fighting for every penny they can get.
"It does make emotions run a lot higher, he said. "There’s a whole lot more at stake."
It’s amazing how far the effects have spread. Bernanke and company used to assure us that problems would be limited to the subprime market. Problems have spread beyond subprime, beyond housing, beyond the economy, into people’s personal lives. It’s sad to see "dream homes" turn into "dead cows". It wasn’t supposed to end up this way
I used to get in arguments with my friend over exactly this sort of thing. He looked at the numbers, saw that subprime mortgages alone accounted for a small part of the economy, and thus nothing would come of it. I saw this as a potentially society-changing event. My grandparents lived through the great depression – even now they don’t spend money, save/reuse everything they can, etc etc. In this crash, what happens to the kids growing up in homes where parents can’t afford to get divorced and always argue over money? What happens to people who get laid off, can’t find work in the area, but can’t get rid of their house so they can move to find a new job? Perhaps renting will be seen as the “smart” move in the future – companies will lay you off at the drop of a hat, and you’re easily mobile if you rent. Any major shift in thinking, and entire business models are dead, no matter how much money the government throws at them.
The people who thought this wouldn’t spread just looked at numbers (and not very well, at that) – they forgot people were involved, and people don’t fit well into equations.
Linenoise:
Completely agree. This is exactly the type of blindness that Taleb talks about in ‘Black Swan’. One can still see it almost everywhere… predicting the future based on several older datapoints. This type of analysis works when society or the economy is in a constant mode, especially a growth mode. ‘Everyone is a genius when the market is up’.
But, at very serious inflection points, judgement and anectdotal information become key. And that drives analysts nuts. Even the good ones. Even CR at Calculated Risk was calling the recession ‘mild’ three months ago, saying, “I just don’t see it’.
Now, the serious debate is how deep into the ‘teens the unemployment rate will be, and when and if (yes, if) the US economy will recover.
twist -
Calculated Risk is covering this story (and the CR commenters are off to the races). Bill’s comment: “I know a couple with this problem – no one wants the house.”