It goes without saying that the impact of the coronavirus pandemic has been widespread and devastating. It has been dramatic and sudden. It has reached every corner of the globe. It has affected virtually every institution – political, economic and social. It has touched every community, every family and every person in some way. For those already going through the personal upheaval of divorce, it’s emotional and financial consequences have only served to make a difficult situation even more stressful and complicated. Even though the vast majority of divorce cases will end up being resolved by the parties by way of a negotiated agreement, the pandemic’s impact has clearly had a drastic effect upon the parties’ ability to negotiate a resolution of their cases at this juncture.
Front and center on our website is the quote from Justice Brandeis: “Nothing is settled until it is settled right.” The pandemic has certainly put this to the test. Until six to eight weeks ago, we were in the midst of a period of sustained economic prosperity. Unemployment was at historic lows. Incomes and wages were up. Businesses were flourishing. The stock market and other investments were at record highs. The real estate market had finally rebounded from the impact of the recession years earlier. One of the biggest keys in trying to negotiate a resolution of a divorce case is having some sense of stability in regards to the family’s financial picture now and of its predictability into the future. When it comes to issues of support, a payor spouse’s willingness to commit to an amount to pay is not only tied to what he or she is earning then, but the reliability of these earnings going forward. When it comes to the division of assets, determining what allocation or distribution of same would be fair and equitable depends not only on being able to identify and value those assets at that time, but some level of predictability of what will happen with those assets into the future. Until recently, that task seemed fairly easy. However, the pandemic has swiftly turned this process on its head.
Record employment has turned to record unemployment in a matter of weeks, largely the consequence of the government’s policy to shutdown “non-essential” businesses in an effort to blunt the spread of the virus. Twenty-two million claims were made for unemployment in the past three weeks alone. Even if people didn’t lose their jobs, they may have suffered a reduction in hours or pay. Social distancing and stay home requirements have further curtailed many jobs and other economic activity. Many businesses have been closed or have seen their revenues drastically reduced. To make matters worse, no one has been able to predict with any level of certainty how long the shutdown will last – weeks, months, until there is a vaccine – or even what the impact all of this economic dislocation will have either short-term or long-term. Whenever it is over, will things simply return to the prior “normal” or will a new “normal” come into being? Will people get their old jobs back? Will there even be businesses or jobs to return to? How much will future earnings be impacted? Will the stock and financial markets rebound?
With this cloud of uncertainty, how can issues of alimony, child support and equitable distribution be fairly and reasonably negotiated? In regards to support, if jobs were lost or incomes diminished, on what do you base such a support obligation? Some would say, and the law might suggest, you base support on the history of past earnings. The recipient may argue that the impact of this pandemic is merely a “temporary” change in circumstances, that jobs and/or income levels will soon return to “normal”, and that support should be calculated accordingly. The payor, on the other hand, is likely not to share this optimistic view, unwilling to commit to a level of support when he or she has no idea when or even if they will have a job or business to return to, or what the level of income or revenues will be going forward. Do you base support on past earnings and hope for the best? If that doesn’t happen, have you simply invited future litigation? Do you base support on current economics and create a methodology or formula for adjustments in support as finances change? Perhaps, but this would necessitate a duty to share financial information, along with potential conflicts of whether the parties are accurately and timely providing this information, particularly in cases where feelings of mistrust and animosity are at their highest. Is it reasonable to ask a spouse to accept a diminished level of support given not only the level of economic uncertainty but to be dependent upon the good faith of other party?
Similar concerns exist when it comes to negotiating matters of equitable distribution. Many of our clients, or their spouses, own small businesses. Many of these businesses have felt the brunt of this pandemic. Some have been forced to close – for how long nobody knows. Others have seen their business and revenues dramatically decline. Those who own or manage residential or commercial real estate are confronted with the loss of rental incomes as tenants find themselves unable to pay. Businesses are considered assets. Beyond the stream of income they produce for support purposes, they also may have “value” for purposes of equitable distribution. Since businesses run or managed by the owner spouses are considered “active” assets, they are normally valued as of the date of complaint. If the divorce case was filed before the pandemic hit during the period of economic prosperity, more likely than not, the business would have had a significant “value”. Most businesses are not only valued based upon historical earnings and performance, but factored within its value is an expectation of how it will perform into the future. However, to what extent would this pandemic affect it’s “value” today? If forced to close, will it even be able to survive or reopen? Did it suffer diminished revenues, and to what extent will these revenues recover, if at all? How should these “post-complaint” impacts factor into the businesses’ value for equitable distribution purposes? Should they be born solely upon the shoulders of the owner spouse? Were these impacts the consequence of “market forces” beyond the owner spouse’s control? It goes without saying that each spouse would have a different perspective of how these issues should be addressed. The evaluation and distribution of business interests are normally one of the more contentious issues in a divorce, even under the best of circumstances. To say that the pandemic has complicated the ability to negotiate a resolution of this issue would be an understatement.
For many families, their home is their most valuable asset. Prior to this pandemic, the housing market was looking strong. Homes were moving, prices were rising and everyone was looking forward to a robust spring market. Unfortunately as a result of the pandemic, the housing market has essentially come to a grinding halt. The number of new listings have dramatically fallen as have the number of mortgage applications. As a practical matter, while most people may look online to view potential properties, social distancing and stay home requirements have restricted the ability to show or visit homes. Hence, if a divorcing couple is contemplating the sale of the home as an aspect of the divorce settlement, the pandemic has clearly tempered those plans. Its impact upon home values is still unclear. Less inventory normally drives up prices, however the economic uncertainty caused by the pandemic will likely drive many buyers to the sidelines, potentially resulting in diminished values instead. This uncertainty obviously complicates how to approach the disposition of the marital home for purposes of equitable distribution.
Besides the loss of jobs and closure of businesses, one of the most publicized economic impacts of the pandemic was the drastic decline in the stock market. The value of most people’s investments and retirement accounts dropped 30 to 40 percent almost overnight. While values have rebounded slightly in recent weeks, they are far below what they were merely two months ago. Will they recover? How much and how long? In negotiating a resolution of their divorce case, parties naturally look to what they have in savings and investments as not only their nest egg and safety net, but as a vehicle to generate income and returns in order to subsidize their support and lifestyle. They look to what has been accumulated in various retirement accounts in formulating not only when they might plan on retiring (and potentially reducing and/or terminating their support obligations to the other spouse), but how much they will have for retirement. The parties may have also established accounts to help fund payment of the children’s college educational expenses, and the value of those accounts may not only determine what college may be affordable to attend, but the parties respective obligations to contribute towards those college expenses. Again, the dramatic reduction in these account values and the impact of same on future goals and plans, the possibility of having to utilize same to live at this juncture, and the curtailment of the capacity to save, serve to complicate negotiating a resolution of the divorce case.
Does this mean that the pandemic and its impact renders a divorce case unresolvable at this juncture? Not necessarily. Just more complicated. Just more things to consider. Just more issues to navigate. However, complicated problems often lend themselves to creative solutions. As has been the mantra since this situation began “we are all in this together”. In this spirit, it would be hopeful that litigants are able to set aside their mistrust and animosity to reach a fair and equitable resolution of their marital issues. Perhaps the situation will become clearer in a matter of weeks or months. If the parties are willing to exercise patience to defer resolution of their matter until that happens, so be it. However, to one extent or the other, this pandemic has clearly altered and moved the goal-posts, and the parties and their attorneys will need to recognize this in negotiating a resolution of their divorce cases going forward.
The attorneys at James P. Yudes, PC are here to help navigate you through these difficult times.