"They started to fight when the money got tight, and they just didn't count on the tears ..."
Lyrics from Billy Joel's "Scenes from an Italian Restaurant" are resonating quite a bit lately with New York divorce lawyer Daniel Clement. His phone has been ringing off the hook with divorce candidates, and traffic on his divorce blog has spiked.
No doubt about it, breaking up is almost always hard to do. However, it can get even uglier during recessions and bear markets.
"Recession has always been a factor raising divorce rates," explains University of Chicago Business School economist Gary Becker. In fact, based on studies Nobel prize winner Becker conducted back in 1977 and published in the Journal of Political Economy, couples that experience any sudden significant and unexpected change in income — positive or negative — are at risk of divorce.
In Michigan, where unemployment is highest in the country, at 8.5 percent in May according to the Bureau of Labor Statistics, it's been especially hard to break up.
Jane Fahey, a financial and retirement planner in East Lansing, reports that some of her middle-aged clients, both men and women, have had to move back in with their parents.
A couple's house is usually the biggest marital asset, and the lousy real estate market and soft economy are complicating the matter of dividing it equitably in a divorce.
Brad Brusenham, a Dallas real estate agent, has helped spouses in the midst of separation and divorce struggling with fears of foreclosure. "The biggest mistake people make is not doing anything because they are afraid of the situation they're in." In one case, he says, a couple was forced to continue living in their marital home for a few months despite the fact they were legally separated and starting to go through a divorce.
In another case, Brusenham negotiated a short sale with a bank on behalf of Sandra, a mother of two who had been deserted by her husband and left with a mortgage she couldn't afford based on her salary as an assistant director for a pre-school in Plano, Texas.
"Nobody wanted to help us," said Sandra, whose name has been changed to protect her privacy.
"Realtors knew we didn't have equity on our new house, and my son was graduating from high school in a month. I wanted him to have some stability." Brusenham negotiated a short sale and extended the time before the family needed to move until after her son's graduation. Sandra now lives in a rented apartment with her children.
Collateral damage from the financial fallout of a busted marriage indeed falls hard on kids. In Delaware, financial adviser Carol Arnott says that rising job losses are reducing child support payments and making it hard to keep health insurance in place after a divorce.
"You can't get blood from a stone," says Arnott, who sees families prioritizing their spending and putting a low rank on health insurance. Health insurance premiums, which cannot be simply put on a credit card, end up being pushed aside.
"When employer-provided health insurance is gone and you're looking at spending hundreds of dollars a month that you don't have on a premium, your first priority is going to be putting food on the table, not buying insurance," says Arnott. Unfortunately, the result can be financial devastation in the event of a serious accident or illness.
In New York City, where Wall Street has been overrun by layoffs, divorces have also been affected, albeit somewhat differently. Michelle Smith, a financial planner and regional director for the Institute for Divorce Financial Analysts, has seen Bear Stearns layoff casualties result in clients needing to make a complete psychological and lifestyle readjustment.
"Lifestyle that's been built up in over a decade is literally, within the span of one week, getting wiped out," said Smith.
One couple, for instance, that was preparing its divorce last summer based on $15 million in income, had to readjust the figures to under $1 million. Second homes in the Hamptons are being sold at lower selling prices, and broken up families are having to adjust to living in smaller apartments.
"Back a few years ago we'd be talking about how to split up the lion's share of assets and gains," said Clement, the New York lawyer. "Now, we're talking about what we're going to be splitting as far as the loss and who will be writing a check to the mortgage company at closing."
Indeed, some couples, when faced with the ruinous financial consequences of divorce during a downturn, may decide it's cheaper to seek counseling and give it another go.