Many people are asking me, “How will a recession affect my divorce? Should I wait?”. While this is an extremely personal decision and has more to do with your individual circumstances than world events, we can certainly look to the past to give us some guidance.

Statistics:

During the last recessionary period of 2009-2011, there is evidence to prove that, in fact, divorce did decline about 4% from anticipated totals. Some experts believe that the reason for that was the housing market, and if we think about that for a minute, it does make some logical sense. There are, however, many other factors to look at and take into consideration when contemplating a divorce during an economic downturn.

Account Values:

When the stock market is on the decline, there is a direct cause and effect relationship on your portfolio values ie: retirement accounts and other savings. During equitable distribution discussions this results in “less to share” which can be looked at as a positive result. Unfortunately, the flip side of this is that the account owner also has “less to keep” making it a scarier prospect of splitting that account, especially when retirement age is looming.

Real Estate:

Let’s return to the real estate market. It’s not unusual that the marital residence can be one of the, if not THE, largest asset in a marriage. When prices start declining it is natural to ask if the couple contemplating divorce have lost their “selling window”? Maybe, maybe not. A great deal of that depends on location. If, on the other hand, interest rates are also on the rise, this could pose a problem for one member of the couple considering buying their spouse out which could necessitate a refinance.

Income:

For those individuals who are contractually salaried employees (teachers, firefighters, police officers) a recession’s effect on their income is not as much of a concern as it is for those individuals in corporate America or self-employed professionals such as doctors, attorneys etc. Since spousal support and child support are calculated based on household income, a recession will have an immediate effect on available resources to support what will now be two households. That is one of the reasons why it is important to look at three years of average income in order to determine what is customary for the lifestyle of the family. A forensic accountant or CDFA can provide a lifestyle analysis to assist with these calculations.

Business Valuations:

As with income, the value of businesses will be adversely effected by a recession. In this current economic environment, coming out of a global pandemic, businesses are still trying to recover their value and many are struggling to survive. Prior years records are crucial to determine a fair value for a family or individually owned business during equitable distribution discussions.

While all of these issues need to be taken into consideration, divorce still remains a very personal and difficult decision to make. Consulting with a team of professionals is your best defense.

Donna LaScala, CDFA®

President, Comprehensive Divorce Solutions, LLC.

During a divorce, one of the most challenging areas to tackle is division of the family’s assets and liabilities.  Between brokerage accounts, retirement accounts, pensions and the family marital residence, things can get pretty contentious as emotions run high.  What may once have been considered “ours” now gets thought of as “what’s mine is mine” especially when discussing retirement accounts and pensions.  Temperatures rise when one or both spouses take the position that their retirement account or pension is something that he/she “earned” and their spouse has no right to receive any portion of it.  Of course, we know that this is not the case and there are clear ways to define what is marital, what is non-marital, and what portion will be divided according to the rules of equitable distribution.

Furthermore, the issue of who will remain in the marital residence, how long that person is be able to stay there, if and when the house gets sold and who can afford to buy the other out comes up in many situations and, when there are minor children still living at home, it raises many more questions that need to be answered. Many couples opt to sell the marital residence, split the proceeds and go their separate ways in a new location.  This seems like a simpler solution to a complicated problem and can be mentally and emotionally beneficial, allowing both parties to start fresh.

Above and beyond these common scenarios, one of the more complex issues for a couple is when there is a family-owned business. This always presents unique challenges to the clients and their attorneys.  Does one spouse own the company?  Was it passed down through generations within that spouses’ family? Are there sibling partners involved? This issue could certainly throw a monkey wrench into what otherwise could have been a relatively straight-forward financial negotiation. Is the other spouse a silent partner without a day-to-day working knowledge of the business? Normally, if only one spouse is actively involved in the company, the other spouse will be appropriately compensated once a forensic accountant has been engaged to determine the value of the business and the marital portion to be awarded to the non-owner spouse.

However, the situation may be more complicated when both spouses are owners AND hold important positions within the organization.

What happens if both spouses are vital to the ongoing success, profitability, and value of the company? Will they be able to work together in the future? They and their advisors must weigh advantages and disadvantages of trying to divide the corporation between the spouses versus having them continue to work together, IF that’s even a viable option. Can they continue to work together? Should they? Is either spouse so indispensable that the business would suffer irreparable damage due to their departure? Will the profitability and viability of the business suffer if one spouse leaves? Can the remaining spouse buy the other spouse out of their share? Is there a buy/sell agreement in place? Is the company an asset that can be sold or is it a business that is dependent on the intellectual capital of one or both of the spouses?  And, let’s not forget liabilities! Is the business in debt? Is this debt the responsibility of one or both parties in the marriage? Is there cash available? All of these questions need to be addressed before a determination can be made regarding how the business will be handled as an asset.

With all these questions needing answers, there is some positive news. The loss of value due to the departure of one spouse after divorce can be temporary.  The health of the company may actually improve after the spouses have gone their separate ways… just like ending a bad marriage might improve the lives of the now separate individuals.  Neither scenario is out of the realm of possibility … it all depends on the individuals involved and the compromises that can be reached during negotiations.