Serving Clients Across Texas

Is Divorce a Good Idea in this Recession?

I have been asked several times lately about whether it is a financially good idea or a bad idea to get a divorce during this recession. Luckily, Texas and specifically the Dallas area, has not been hit as hard by the recession as other parts of the country.

Determining whether divorce is the right option for you requires weighing many different factors, including the financial impact of this decision on you and your family. It is no surprise that with the current state of our economy, the portion of the community estate most people leave their marriage with today is worth less now than it was in the very recent past. Whether it is a bad idea to get a divorce in the current economic climate depends, in part, on the types of assets that make up the community estate and the financial positions of the parties, namely, their immediate need for cash and liquid assets.

Often in a divorce, it is necessary to sell the marital residence and/or cash out an investment or retirement accounts. Now, with the current economy, these assets are worth less than they were in the past and will be again in the future. Frequently, in these tough financial times, people must sell their marital residence upon divorce because neither of them can afford it on their own. Cashing out retirement and other investment accounts upon divorce is also common due to increasing unemployment and the immediate need for cash. If selling or cashing out these assets at their current value is unavoidable, there are some definite economic disadvantages to getting a divorce right now.

On the other hand, for those people in the financial position to hold on to these assets until the economy improves, it can give them more “bang for their buck” in the final property division. Since community assets are valued as of the date of divorce, these assets represent a smaller portion of the community estate now than they would have before the current economic downturn. The current economy enables people who can afford it the opportunity to obtain community assets in the final property division, like the marital residence or their entire 401(k) plan, at what is effectively a discount.