Breaking up hard to do in down real-estate market

When Marci Needle and her husband began to contemplate divorce in June, they thought they had enough money to go their separate ways.

They owned a $1 million home in Atlanta and another in Jacksonville, Fla., as well as investment properties.

Now the market for both houses has crashed, and the couple argue about whether the homes are worth what they owe on them, and whether there are assets left to divide, Needle said.

"We're really trying very hard to be amicable, but it puts a strain on us," said Needle, with friction in her voice. "I want him to buy me out. It's in everybody's interest to settle quickly. That would be my only income. It's been incredibly stressful."

Chalk up another victim of the bad real-estate market: divorce.

With nearly one in six U.S. homes worth less than the mortgage owed, according to Moody's Economy.com, divorce lawyers and financial advisers say the logistics of divorce have been turned around.

"We used to fight about who gets to keep the house," said Gary Nickelson, president of the American Academy of Matrimonial Lawyers. "Now we fight about who gets stuck with the dead cow."

As a result, divorce is more complicated and often more expensive, with lower prospects for money on the other side. Some divorce lawyers say business has slowed or that clients are deciding to stay together because there are no assets left to help them start over.

"There's an old joke," said Randall Kessler, Needle's lawyer: "Why is a divorce so expensive? Because it's worth it. Now it better really be worth it."

In normal times, couples typically build equity in their homes, then divide that equity in a divorce, either after selling the house or with one partner buying out the other's share.

But today, more couples own houses that neither spouse can afford to maintain, and that they cannot sell for what they owe. For couples already under stress, the family home has become a toxic asset.

"It's much harder to move on with their lives," said Alton Abramowitz, a partner in the New York firm Mayerson Stutman Abramowitz Royer. "I'm in the middle of several cases where it's virtually impossible right now to get a good read on what the real estate is worth."

For John and Laurel Goerke, in Santa Barbara, Calif., the housing market crashed in the middle of what John Goerke said had been an orderly legal proceeding.

At the height of the market, Goerke said, their house was appraised at $2.3 million, which would have given them about $1 million to divide after paying off the mortgage.

By the time they sold last year, the value had fallen by $600,000.

"That changed everything," said Goerke, now nearly two years into the divorce process, with legal and other fees of several hundred thousand dollars. "The prospect of us both being able to buy modest homes was eliminated. The money's not there."

Now, with both spouses in rental properties, their lawyers still cannot agree on what their remaining assets are worth. Their wealth is ticking away at $350 an hour, times two.

"It's got to end," Goerke said, "because at some point there's nothing left to argue about."

For other couples, it does not have to end. Lisa Decker, a certified divorce-financial analyst in Atlanta, said she was seeing couples who were determined to stay together even after divorce because they could not sell their home.

"We're finding the husband on one floor, the wife on the other," Decker said. "Now one is coming home with a new boyfriend or girlfriend, and it's creating a layer to relationships that we haven't seen before. Unfortunately we're seeing the 'War of the Roses' for real, not just in a Hollywood movie."

In California, James Hennenhoefer, a divorce lawyer, said couples were taking advantage of the housing crisis to save money by stopping their mortgage payments but continuing to live together for as long as they can.

"Most of the lenders around here are in complete disarray," Hennenhoefer said. "They're not as aggressive about evictions.

"Everyone's hanging around in properties hoping the government will buy all that bad paper and then they'll negotiate a new deal with the government. They just live in different parts of the house and say, 'We'll stay here for as long as we can, and save our money, so we have the ability to move when and if the sheriff comes to toss us out.' "

Hennenhoefer said this tactic worked only with first mortgages; on second and third mortgages, lenders pursue repayment even after homeowners have lost the home.

Dee Dee Tomasko, a nursing student and mother outside Cleveland, expected to divorce and get about $200,000, mainly from the home, appraised at about $1 million in 2006. By the time of her divorce last year, however, the house was appraised at $800,000; her share of the equity came to about $105,000.

Although she is relieved to be out of the marriage, if she had known how little money she would get, Tomasko said, "I might have stuck with it a little more, I don't know. Maybe it would've made me think a little harder."

For divorcing spouses with resources, though, there can be opportunities in the falling-housing market.

Josh Kaufman and his wife bought a 6,500-square-foot house outside Cleveland on 5-½ acres that was worth $1.5 million at the market's height.

When they divorced in June, Kaufman knew his wife could not afford to carry the home. The longer the divorce process continued, the more the house depreciated. By the time he assumed the house, its appraised value was half what the couple had put into it; he did not pay her anything for her share.

"From a negotiating standpoint we knew that she couldn't afford to stay in it," Kaufman said. "It appeared as an opportunity to turn the negative situation around. There was no emotion involved. It was a business decision on what made most financial sense. It wasn't an attempt to take advantage of someone."

Still, his lawyer, Andrew Zashin, said, "He bought this house at a bargain-basement price."