Study after study has looked at the impact of the recession on everything from obesity to fashion. But I’ve had my eye on a number of reports all year which, collectively, seem to indicate that the recession has made for estranged bedfellows of couples who would get divorced if it wasn’t for the decline in their home’s value. Almost 40 percent of couples who were considering a divorce or separation before the recession began said they put aside their plans to split, according to The Great Recession and Marriage, a survey conducted by the University of Virginia’s National Marriage Project.
Now, some of these divorces were undoubtedly called off because of the increased (and cliched) recognition of what’s really important when times get tough. Twenty-nine percent of all couples surveyed said the recession deepened their commitment to stay married. “For some people, the recession led them to become more aware of the ties that bind, how spouses, parents, in-laws and kids stick with you when times are tough,” said Virginia sociology professor Bradford Wilcox, who directs the National Marriage Project.
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But before you start feeling all warm and fuzzy inside, take note. Wilcox points out that other stalled divorces are the direct result of a plain old cash crunch. “When the economy is in the tank,” Wilcox said, “people are less interested in getting a divorce because they’re worried about the value of the home, paying for lawyers and for two households.”
A study recently published in the American Economic Review provides empirical evidence linking declining home values to a decline in the divorce rate, even after controlling for unemployment rates. Projecting their observations of actual divorce data out to a hypothetical, college-educated population (assumed to be homeowners), the study’s authors found that a 10 percent decrease in home prices would lead to a 21.5 percent decrease in the risk of divorce — evidence they found to be “consistent with homeowners being locked into their homes by increased transaction costs in down markets.”
Actual divorce rate data backs this up, though it’s difficult to separate the impacts of plummeting home values from unemployment or income reduction or being unable to pay the monthly bills on the lowered divorce rate. From 2007 to 2010, unemployment went up by 6 percent and home values declined almost 30 percent. The divorce rate declined by just over 4 percent nationally from 2007 to 2009.
There are several dynamics that could explain this hesitance to divorce in a down market. One of the most simple is loss aversion. People simply don’t want to lock in their losses on their homes, so they don’t sell (and don’t get divorced). Also, it’s difficult or impossible to obtain bank approval to sell an upside down home, and the spouses don’t have the cash to make up the negative equity to close a sale, so they’re trapped. Even if they can sell the place, the down market has taken a hit on the value of what is the largest asset for most couples, making it difficult or impossible for them to pay off other debts.
Unemployment, reduced income (which 29 percent of the National Mortgage Project survey respondents reported) or trouble paying the household’s existing bills (34 percent) make couples think they’re crazy to even consider breaking up and stretching their income to cover legal fees and the costs of two households.
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While the evidence is indisputable that people are both working harder at their marriages and pressing pause on their divorces, one estranged couple’s strange, court-ordered workaround for avoiding a home sale in this down market appears to have outlived its sensibility.
When Chana Taub forced her husband to move out around the same time they initiated divorce proceedings in 2005, the court ordered that he be allowed to move back in. The court also ordered the couple to build walls dividing their three-story New York City residence so that each of them could have a floor-and-a-half. The walls carved the place up so that the wife got the top floor, the husband got the first floor, and they split the second floor — thanks, in part, to barricades on both sides of a second floor door.
Six years later, the couple’s lawyers say they still live on their respective sides, but the court has ordered them to sell the home (and two other properties) and split the profits, diminished though they may be. And four years into this real estate recession, home prices nationwide are still down more than 30 percent from their 2006 peak, although sales activity has had a slight bump this summer, according to the National Association of Realtors. (But values don’t seem to be headed steeply upward anytime soon.)
Accordingly, couples who would be divorced if it weren’t for the recession might do well to face this reality and talk with real estate, legal and financial advisers to see what their options are if they do split up while their home’s value is depressed or upside-down.