What you need to know
By Felicia Soleil, Attorney/Mediator
“Woulda, coulda, shoulda …” a common refrain these days from divorcing clients who regret not selling their houses during the “pandemic boom.” Those were the glory days for parties who wanted a quick cash-out, whether from selling or refinancing a buyout for the other party at historically low interest rates. It certainly kept conflict to a minimum around a major asset in divorce settlements.
Unfortunately, a new level of conflict has now arisen with respect to who gets the house and the timing and terms of a buyout. Declining home values, coupled with significantly rising interest rates, have put a monkey wrench in settlement negotiations.
I often tell clients that it is neither party’s fault for what the economy is doing the year they choose to get divorced, and their settlements will reflect what is happening within their geographic region, nationally—and sometimes even globally. They have to work within the confines of the economy in which they choose to end their marriage.
Before they may have been contemplating divorce, many clients took advantage of the historically low interest rates during the pandemic to lower their monthly mortgage payment by either refinancing or purchasing a new home. What does this mean for their pending divorce in present times?
If there are insufficient assets to trade for the home’s equity, it usually means one party is arguing strenuously to keep the home so their monthly payments remain affordable and asking the other party to delay receiving their buyout. Of course, the other party has to find new housing, whether a rental or a new purchase, in a market where rents and mortgages are now almost out of reach for some clients transitioning to a single income. Difficult decisions, for sure.
As a divorce lawyer and mediator, I’m repeatedly hearing about the “unfairness” of one party being able to keep the house and have low housing costs, while the other party must now pay top dollar for housing. Or how forcing a sale puts both parties in the position of being unable to immediately purchase a new home while slashing budgets to pay for local rent.
How do we resolve this? In cases with children, the parties will often decide to keep the home intact for a period of time so the children can still have their family home. Also, the parent retaining the home—often the lower earner—can have affordable housing in the short term. When the focus is the benefit to the children, the other parent becomes more willing to sacrifice an immediate cash infusion from an equity buyout or sale.
Another scenario is for the person awarded the home to refinance now at current higher rates with the intent to refinance again in the future once rates hopefully become more affordable. While this has added costs for the party refinancing, it provides the other party with their equity sooner rather than later. However, this option only works if the refinancing party can afford to significantly increase their monthly payments and really wants to keep that particular home at the increased cost to them.
While these options seem simple enough, although not ideal, it can take a lot of negotiating to get to the most beneficial solution for all involved because the emotions are still so fresh from the pandemic and the associated housing boom that no one could have predicted. But this too shall pass, as every divorcing couple will face not only their interpersonal challenges but also the external challenges of the time in which they choose to divorce.
Felicia Soleil is a divorce mediator and family law attorney located in Gig Harbor. She helps her clients in achieving resolutions that foster both a compassionate ending to their union and a healthy new beginning so they can focus on moving on, rather than simply moving out. Felicia can be reached at 253.853.6940. All consultations are strictly confidential and currently conducted by appointment via Zoom or phone.
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