How Does The COVID-19 Economic Climate Impact The Division Of Property In A Divorce?
How does the COVID-19 economic climate impact the division of property in a divorce?
I am only licensed in Michigan, so my answer may vary from the particular state that you reside in, but it certainly creates a lot of uncertainty regarding property division. One of the reasons attorneys do extensive discovery during the divorce process is to fully understand the extent of the parties’ financial situation, including the value of their assets.
Without knowing the value of assets, it is difficult to understand what constitutes an equitable division of the assets, and the current economic situation has certainly affected the value of assets.
The biggest impact it can have on property division is affecting the values of marital property. Retirement assets, such as 401k plans, significantly have been affected and have decreased in value.
This results in less retirement assets to split and can affect settlements, where one party was counting on those assets to pay off the other party or parties that were hoping to use those retirement assets when they are transferred. With a decreased value, the parties have less to divide and are more limited in their ability to be creative in structuring settlements.
Another area that can affect the division of property is with home values. The extent still is somewhat unknown, because in Michigan realtors and appraisers are not considered essential employees and have not been able to sell or appraise houses during the state closures.
If one party is trying to keep the home and pay the other party half of the equity, without a clear idea of the property’s value, they could end up overpaying for the property or end up with a property that is underwater and has no value.
Even if the parties are in agreement on selling a home and the sales price will determine the value and what each party receives, if the home does not sell for what the parties are counting on, then that could affect what they are willing to accept, in terms of other property in the divorce process.
Additionally, depending on where you are at in the divorce process, can make a difference, as well. For example, if you just filed for divorce, the economic climate can have a different impact, than if you are settled and waiting for the courts to reopen to enter a judgment.
If the parties agreed before the shutdowns that one party would get all of the retirement assets and the other party would receive the marital home because they had equivalent values, that may no longer be a fair settlement since the current economic climate has had a significant negative impact on 401k plans and other retirement assets. In that situation, since the circumstances that existed at the time of the settlement substantially have changed, it may be worth exploring options to set it aside.
Conversely, if you are just starting the divorce process, there is more awareness regarding the changing economic climate, and you would be able to address some of the valuation questions during the process.