The New Economic Realities of Family Court

These days question number one from friends and acquaintances is, "how's business in these tough economic times?"  I tell them business is busy.  Then the question is typically rephrased to "how is the economy affecting families?  Is it leading to more divorces?"  Relevant questions all.  Attorney Charlotte E. Thomas penned an article The Legal Intelligencer Blog answering those questions.  It focuses on the observations of a Philadelphia family law judge; but reflects trends every state is seeing.

I recently spoke with Judge Margaret Murphy at Family Court in Philadelphia. Murphy explained to me that the economy has had a big impact on decisions in Family Court.  Just as the economy has hit us all, parties in Family Court have suffered from layoffs, work hour reductions, changes in benefits and decreased retirement assets. Murphy said she isn’t necessarily seeing a change in the volume of cases, which always seems remarkably high.  Rather, the economy has changed the types of the disputes that she hears relating to child and spousal support and equitable distribution.

It’s not just that support payments are being reduced because of income changes. Other aspects of support are also affected by economic circumstances. By way of example, an issue arising with frequency is school choice.  Parents unable to agree on the school that a child will attend often seek judicial intervention.  In the past, arguments focused on what type of private or parochial school would most benefit the child.  With layoffs and changes in income, Murphy is seeing more parents financially unable to pay for any private school.  In other settings, one parent may agree to provide support while a child attends college.  More and more parents are unable to afford this form of agreed upon support.  Sometimes it is a simple inability to pay because of a lost job.  Other times, a lender may refuse to allow a parent to co-sign a student loan because of the parent’s decreased income or because real estate values are so depressed as to make the parent non-creditworthy.

The loss of medical coverage, either because of a lost job or because job benefits are cut, is occurring more frequently.  For example, if a parent loses a job and thus loses health coverage, the cost of COBRA can be exorbitant, particularly when coupled with a loss of income.  The loss of medical coverage affects not only well-care checkups of dependent children, but other types of treatment as well, such as orthodontic treatment.  While Murphy routinely refers dependent children to the CHIP program, parents may have little choice but to go without health care or elective medical treatment for children. 

According to Murphy, the economy also is changing the dynamics of equitable distribution calculations.  Businesses that were at one time flourishing, or at least profitable, may be subject to significant reductions in value, thereby changing the equation for the division of marital property. 

The same is true for depressed real estate values.  In the past, refinancing was a method of choice to divide the marital home, allowing one spouse’s interest to be purchased by the other through refinancing.  With decreased property values and less credit available, refinancing is not always an option.  As a consequence, Murphy said she is seeing more marital homes being marketed for outright sale.  The sale of the marital home in a depressed market brings on its own set of problems, as sales may be slow and at reduced sale prices.  Some families may own vacation property, which replicates the problems in the division of the marital home.  The vacation home market is challenging for the additional reason that the market is driven by buyers who can afford the luxury of a second home – a relative rarity in this economy.  Families also have been hit hard by the expenses that come with second homes, such as increased taxes in some states and the costs of maintaining these properties.

All of us shuddered to watch our retirement accounts decline last year.  Murphy calls these passive declines.  Passive declines in IRAs and 401K plans have had a decided effect on equitable distribution.  In the past, if one party to the marriage had established a sizeable retirement account, alimony could be reduced or the marital estate partitioned based on the assets in the account.  Although few and far between, Murphy has seen parties claim that these declines were not passive, and that the accountholder should have foreseen the economic collapse and invested more conservatively.

In short, the economy is having a significant impact in the way in which issues are heard in Family Court. As the economy establishes its footing, no doubt these issues will be revisited under yet another set of changing economic circumstances. 

Please click here for the original article.

Please be sure to visit www.hardinglaw.com, the website for the law firm of Harding & Associates, for more information on California family law.