How to Divorce during a Recession or Financial Hardship
In the past, an economic recession may have meant postponing divorce. After all, divorce costs money, and it’s sometimes hard to gauge how much it’s going to cost until all is said and done. For this reason, some unhappy couples stay together when cash is tight and the expense of divorce or splitting households seems too difficult to manage.
For other struggling couples, however, a recession actually stokes their desire for divorce. Why? As you might guess, the grueling financial concerns that come with a recession prompt the final breakdown of the marriage.
Does a recession lead to an increase or decrease in the divorce rate, and why? You’ve likely heard that both are true. So, which is it? The answer is not simple, but let’s explore all the hows and whys as well as how to survive a divorce during a recession.
Do people divorce more or less during a recession?
Conflicting evidence exists about whether the divorce rate goes up or down during a recession. Some theories suggest that recessions eventually lead to more marital conflict — though not immediately divorce. Over time, however, the impact of financial stress is shown to lead to relationship breakdowns.
In a Marquette University study titled, “Til Recession Do Us Part: Booms, Busts, and Divorce in the United States,” researcher Abdur Chowdhury found that the higher the level of dispensible income, the higher the odds of divorce. Since this “extra” or impermanent income often goes away or becomes more important during a recession, it makes sense that couples who lack it would wait until economic conditions improve to transition to divorced life.
A 2014 study suggests that the downfall of these marriages is less about financial problems and more about how married couples deal with the stress of reduced money and employment. Some couples grow closer; others experience more conflict. In his research, Philip N. Cohen found that divorces increase during an economic recession because increased family stress drives them apart. Alternately, married couples may respond to the hardship by growing closer together.
Financial concerns and struggling relationships
One point in the research is clear: Money issues often cause further breakdowns in a struggling relationship. This also explains why divorce rates increase substantially when the economy starts to recover. Couples with financial problems often stay together during a recession not because they are happy but because they’re afraid they can’t afford to get a divorce.
Bottom line: No one should be trapped in an unhappy marriage just because economic times are tough. Let’s look at how to divorce during a recession with the least financial risk.
Can you afford to get divorced during a recession?
Divorce is a huge life change, and it can be scary to jump into such a change when you’re worried about the financial impact of going from joint to separate accounts. And it’s true: Transitioning from two incomes to one can be difficult, especially if you’re dealing with shared debts, job loss, or lack of savings. And then there are all the costs of the divorce process itself.
But divorce doesn’t have to be financially devastating, especially if you and your spouse can work together to come to an agreement out of court and without lawyers. Here are some ways to safeguard your financial well-being and move on from divorce as quickly as possible.
How to save money on your divorce
- Reach an agreement with your spouse with little to no third-party help. If you can work everything out on your own — property division, spousal support, child support, child custody arrangements — great. If not, a few sessions with a mediator, CDFA, or family law attorney can help you get there with far less cost and much more control than leaving things up to a judge or hiring a pricey divorce lawyer.
- Hire help on demand. As stated above, hiring help from experts only when needed can save you a lot of time, money, and stress. Look for professionals who offer tailored flat-rate services so you’re not paying for time or legal advice you don’t need.
- Focus on resolution, not points of disagreement. When negotiating a divorce settlement, compromise is almost always necessary. Focus on your shared goals, like wanting to finalize your divorce as quickly as possible and with as little drama as possible.
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What should you do with your marital home during a recession?
If the real estate market is low, consider purchasing your spouse's interest in the home. You get the benefit of a lower value (house prices should go back up after the recession), and they walk away with some money for their new home.
If that isn’t feasible or the market is still high, you might agree to jointly own your marital home until the market recovers. Then, you could sell it and split the proceeds.
Who gets the house in divorce? How do you split the value? Try our Home Equity Buyout Calculator.
How to divide retirement accounts
One or both of you likely have some sort of retirement account. In the best scenario, you each have one or are able to split a shared account evenly.
Sometimes, however, one spouse has a lot more money saved than the other. In cases like these, it’s tricky figuring out who should get what. And, in a recession, you may be looking at a grim balance.
You’ll need a qualified domestic relations order (QDRO) if one spouse wants to get part of the other’s retirement account. Often, couples focus on a dollar amount. In a recession, however, the creative solution is to choose a percentage to transfer (because the value could drop before divorce is finalized or division can occur). If the value drops, you “share” the hit instead of one party getting a windfall.
Dividing property and debt when you’re struggling financially
If everything feels too uncertain, consider “reserving” over property division until later. This means that you will still get divorced, but you will delay decisions about who permanently gets what marital property — real estate, vehicles, and other items of value.
Notably, this arrangement only works if you and your spouse are on the same page and can resolve things without a lot of struggle.
Another option is to consider an alternate valuation of your assets. For example, if you want to buy out your spouse’s interest in something, but its current value is low and they say “no” or want to delay the sale, look at historical values, and agree to a value you both can live with.
Use our Property Division Spreadsheet
FAQ about divorce during an economic crisis
What if I am paying or receiving spousal support (alimony)?
Let’s look at each person’s goal in an alimony situation. The payee’s goal is to lock in a number that isn’t adjusted. In other words, as a spousal support recipient, your income might go up, but that doesn’t mean you need less support. This approach entails less risk for you and more incentive to keep making strides in your own work pursuits. Plus, it’s easier for both of you to plan and qualify for loans in this case.
The payor’s goal is to provide support only if their current income remains stable and to cease support payments when and if their spouse can support themselves. They want to lock in support based on their current abilities and with the ability to modify payments should they face job loss or income loss.
A creative solution is to explore a buyout. To keep things as fair as possible, make support terms modifiable so that, as income and expenses change, so can the payment terms.
How do commissions, tips or bonuses impact support payments?
It can be difficult to agree to a “fair” support amount if someone's income changes often (sometimes monthly) due to earning commissions, bonuses, tips, or other incentives. Instead of needing to come back to court or the negotiating table every few months, you can create a table as an addendum to your base support. This table factors in income beyond base earnings. Spouses can use it to adjust support automatically depending on how much extra is earned each month (CDFAs can help with this).
How do ex-spouses maximize tax deductions?
While there are a few state-level variances, for the most part, you can only make tax adjustments if your divorce is finalized by Dec. 31 of the tax year. So, if your divorce isn’t quite finalized in 2022, you can’t claim single status until you file your 2023 taxes (assuming the divorce is finalized by Dec. 31 of 2023).
One tax-related option might work: Instead of married filing separately, you could file jointly and work out a solution for the refund or taxes owed together.
What should we do with our stocks?
If the stock market value is down, split your shares instead of a value. Sure, you’ll both take a hit now, but you will likely both see a return later.
How can we co-parent if one spouse needs to find work or get more training?
The main thing to do is be flexible and consider the family’s long-term best interests and well-being. If one parent needs time to apply for jobs, job training, or school, support it! It’s a win for the parent who will get extra time with the kids and less pressure on the parent seeking financial gains. Keep your custody joint so you both have the ability to get ahead without worrying about losing access to the kids. Allowing your co-parent to succeed is a win for you, too.
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