Housing Crash Leads to a Falloff in Divorces

EDITED BY NIKKI WALLER

The divorce rate in the U.S. fell 4% last year, according to a report released last week by the National Marriage Project. The news might cheer family advocates, but the lousy housing market is probably the cause, as couples with depreciated home values wait to split until the market rebounds.

Right now, home values are down substantially. According to Moody's Economy.com, 31.8% of owners with a first mortgage currently owe more than their house is worth. Couples who decide to get divorced are splitting liabilities instead of assets.

"It used to be that couples fought over the house because of continuity and stability for the children," says Fadi Baradihi, president of the Institute for Divorce Financial Analysts. "That's not happening anymore. Now everybody wants to run from it."

But when a property has lost significant value, running isn't so easy.

When it comes to the dilemma of selling or keeping the family home, the issue is if either spouse can actually qualify to refinance the home as a single, one-income household. With negative equity so prevalent, it's virtually impossible to refinance, says Leslie Thompson, a certified financial planner and partner at Spectrum Management Group in Indianapolis. That doesn't leave a divorcing couple with many good options. Here are a few to consider.

Wait it out: Continue joint ownership with an agreement to defer the sale of the house, in the hope that home values will rise down the line. Under this arrangement, one spouse usually moves out.

If both spouses are on the mortgage, the one who moves won't be able to get another mortgage, since banks are unlikely to lend to someone whose assets are tied up. When the house sells, each spouse gets half the proceeds at the time of sale (not at the time they got divorced). If one spouse has been making mortgage payments, he or she should get credit for the amount of the principal paid since the split.

Rent it out: In this increasingly popular arrangement, both spouses move out and rent to someone else. This setup also makes it difficult to buy another house, because both spouses are stuck with the house and the payments for a long time.

Just get out: Sometimes it's best to sell at a loss and move on, says Ms. Thompson. The couple negotiates with the lender to pay the difference between the sale price and the amount they owe or a lesser amount -- in which case they will have to determine how the debt will be paid. The lender also might agree to take the entire loss.

-- Liza Scherzer

SmartMoney.com