It's hard enough at the best of times to decide what to do with the house during a divorce. When homes on the market outnumber sales 10 to 1, that's really not the best of times.
What to do?
First, communicate, suggests Louise Phipps Senft. As president and founder of LPS & Associates/Baltimore Mediation, she sees a lot of divorcing couples looking to negotiate agreements, and right now the family home is the focus of much energy and angst.
"We're working with houses that are completely 'underwater,' " says Senft, noting that it was rare in earlier years for clients' homes to be worth less than their mortgages but is now happening "with some frequency."
Other couples aren't underwater but are stung by the value appraisers are putting on their homes. (Among Senft's clients, homes at either end of the price spectrum are holding up pretty well, but ones between $400,000 and $800,000 aren't.)
When a divorcing couple's home is underwater, there's increased danger that the party ending up with the house will be the lender, says Jay Brinkmann, chief economist with the Mortgage Bankers Association.
"When home prices are going up, you can very easily sell the house, split the proceeds and the two parties go on their ways," he says. "When you have a drop, ... they may then decide, 'Just let it go to foreclosure.'"
Plenty of couples don't want that, though.
For some, the agreed-upon solution is holding off on selling. Senft says clients have made that work by staying with relatives or continuing to live together - after negotiating some rules.
"It creates a fairly stressful environment for a family, so we're doing more and more short-term living agreements for people with regard to roles and responsibilities," she says.
For couples who don't intend to sell because one of the parties wants to keep the house, the issue is value. Specifically, putting a number on an asset that could decline in price in the near future. Some have handled that with agreements to review the home's value at a future date. Others have opted for a trade-off that isn't quite equal, at least as things stand: You get the house, I get the 401(k) that's worth a bit less - right now. "They're saying, 'It's a crapshoot,'" Senft says.
The housing slump does offer a potential plus for divorcing couples: It means fewer problems of the one-wants-to-sell, the-other-doesn't variety. The housing boom years, by contrast, were easy and lucrative times to unload a house.
"Now, there's not as much of a fight over the money in the house and, interestingly enough, [there] can be even greater collaboration because they're sort of in it together," Senft says. "The experience is joined, the misery of the market."