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.
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.
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.
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.
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.
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.