Is Inflation Making Divorce Unaffordable?

It is no secret that pretty much everything costs more today than one year (or one month) ago. Whether you visit the supermarket, rent a car, or buy new furniture, there is that unavoidable moment of sticker shock. The Consumer Price Index rose 0.3% in October and was up 7.7% from the year-ago period, but these changes seem modest compared to some areas of daily life. Today, we will examine how the country’s ongoing bout with inflation is impacting the divorce process, and if there is anything that can be done to mitigate the increased cost.

Good News and Bad News

First, the “good” news – the increase in the price of legal services is approximately tracking the general rate of inflation. However, the bad news is the median price of a divorce in the US has increased steadily over the years, partly due to inflation and party due to increased requirements such as e-filing and the rising cost of various State-required fees associated with filing a divorce . Clearly, these are substantial sum that must be parted with during a time already filled with considerable financial and emotional stress (one of the reasons The Essex Firm provides a fixed cost quote during the initial consultation). But a divorce is not like buying a car – there are a number of other potential issues, including:

Mortgage rates – If one spouse will be taking title to the family home, usually the only way to remove a joint owner is to refinance. Until early 2022, fixed-rate mortgages were at historically low levels, but the persistent post-pandemic inflation has driven 30-year rates to over 7% in many areas, more than double from one year ago. The payment on a $300,000 mortgage is now more than 50% higher. Combined with more stringent lending criteria, many potential borrowers will no longer qualify.

Leasing rates – Disappointed would-be homeowners might settle for renting a nice apartment, but many of the same problems can arise. While the steady march upward in cost to lease an apartment or house finally seems to be slowing nationwide, the average monthly lease is still 15% higher than one year ago, and in many popular markets, it has jumped 30% or more (assuming a suitable unit is available). The supply problem, combined with the increased cost and more rigorous financial screening, places additional hurdles in front of former spouses trying to rebuild their lives.

Falling asset values – The rapid increase in lending rates has resulted in the downward repricing of many common household asset values. The previously rapid appreciation of residential real estate has slowed, and in some cases, begun to reverse. This changing dynamic can be frustrating to all parties during a divorce, particularly if a value cannot be agreed upon. Slowing down this process obviously increases the cost to each spouse, and may further reduce the proceeds of any home sale if prices continue falling during the delay. The average investment account has lost 23% of its value in the past year. These changes in long-standing trends add to the potential for financial conflict.

What can be done?

Parties to a divorce are currently realizing their assets may be worth less than expected, while costs (legal, leasing, child support, etc.) have jumped. Reactions to these factors include postponement – some couples have agreed to put their differences on hold until conditions are more favorable. Others have proceeded but agreed to cohabitate until suitable housing options were more available. In some cases, the more “traditional” division of assets (where one spouse keeps the home and other is primary recipient of financial assets) has been replaced by an even split, some both incur the same amount of (housing and capital) market risk. The increased total cost of a divorce has inspired some to call it off entirely.

We can help you

With over 35 years of experience in all kinds of economic environments, we at The Essex Firm bring a unique insight to every client. By reviewing the facts and possible outcomes, we can give you the best analysis of how to proceed, exactly what will be required, and in the vast majority of cases, how much it will cost. Given the stress level we currently face, no one wants to feel like they are being nickel and dimed. If you are ready to hear your options and an honest assessment of likely results, please feel free to schedule an in-person or online appointment.