Illustration:Chris Gash for Newsweek
Committing to Separation: Divorce decrees increasingly include ‘disaster scenarios'
By Linda Stern
Aug. 4, 2008 issue
It’s been more than a year since Janette Chamberlin and her husband decided to divorce. To save money on lawyers, they’ve been negotiating their own settlement and are ready to draw up the papers and finalize the deal. She even has a new boyfriend. The catch? The Chamberlins still live together in their house outside Philadelphia. The couple just sold their home, and, as a result, neither has been able to afford to move out.
The economy is taking a toll on marriages, but it is tough on divorces, too. Couples can’t unload their houses for enough cash to pay off their mortgages and home-equity debts, but job losses and tougher mortgage standards make it harder to afford splitting them, too. “I’m seeing many people who lose jobs and just don’t have the money to pay their alimony and child support,” says Jill Brooke of the online community First Wives World (firstwivesworld.com). Here’s how troubled couples can extricate themselves during troubled times.
• Deal with the house. Couples can hang on to a house until the real-estate market improves, but it’s usually not a good idea, says Stacy Francis, a New York financial planner who deals with divorce issues. “You’re binding two people together financially who don’t want to be bound in any way,” and if one stops paying on the mortgage, it can cause housing and credit problems for the other. It’s better to transfer the house to one spouse, if that spouse can qualify for a mortgage on his or her own.
Couples who can’t afford to do that and find themselves “upside down”—owing more on the home than they can sell it for—are negotiating short sales, in which the bank agrees to cut the loan amount to the sale price the couple gets. Richard Zaretsky, a West Palm Beach, Fla., lawyer, says he is negotiating two or three short sales a week for divorcing couples.
• Plan for disasters and windfalls. Newly divorcing partners are more reluctant than ever to agree to long-term alimony arrangements, because they are afraid their jobs won’t last as long as the divorce deal, says Francis. Many are asking that their divorce decrees include “disaster scenarios”—automatic adjustments to their payment schedules if they lose their jobs. But job loss adjustments should be temporary, and spouses who agree to big alimony deals and then opt for income-slashing career changes shouldn’t be let off the hook so easily, she says.
• Mediate for the long haul. Only one in 10 divorces actually end up in court, with more splitting couples negotiating their own financial arrangements. That’s good, as long as you don’t expect one settlement to handle everything forever. Call in a financial pro to make sure the technical details are covered (find experts at divorceandfinance.org), and expect to return to mediation as your separate lives unfold. “The divorce is not just one moment,” says Brooke. “Life goes on and you’ll always have a relationship with this person.” Even if you eventually stop living together.
