Property wars
By William Little
Financial Times
Published: March 28 2008 20:56
It will come as little surprise that the divorce rate is increasing across
Europe and the US as changes in attitude to marriage and more liberal
separation laws begin to take effect. Spain, for instance, has seen
higher-than-expected divorce rates, with the Spanish National Institute of
Statistics revealing that 126,952 dissolutions were registered in 2006 a
74.3 per cent increase on the previous year after Spain's government
introduced the "express divorce" bill in 2006.
In the UK, the rate has declined because there are fewer marriages in the
first place. Yet according to the UK's Office of National Statistics,
cohabiting couples are nine times more likely to split up than married
couples, easily making up for the decline in the divorce rate. While it
might be more straightforward to end a union today, breaking up is still
hard to do because the division of property is becoming increasingly
fraught.
"When break-ups are not amicable, real estate becomes a point of
contention.
In an extreme one partner may want to punish the other and attempt to
literally take the roof from over their heads ... it can bring them joy
and
expresses power," says Elyse Goldstein, a psychologist from New York who
has
witnessed increasingly hostile battles over homes in the city, which she
says is linked to the recent explosion in property prices.
With some residences in Manhattan selling for more than $5m, couples feel
there is more to lose and will fight harder. Yet for others, a phenomenon
called "real-estate-enabled divorce" has become an increasingly tempting
option: one partner waits for property prices to peak before starting
divorce proceedings, knowing they will be able to start a new life
somewhere
else on the financial outcome.
"One of my clients used the proceeds of the sale of the house to buy
herself
a property in Florida. She received so much money that she won't have to
work again," says Michele Kleier, a Manhattan-based estate agent who
regularly receives phone calls from people asking whether she thinks the
market is nearing a peak. She has also seen how the increase in home
values
has encouraged couples to play dirty in the ongoing property wars. "The
more
an asset is worth the more people are likely to fight over it," she says.
"In marriage both people are fighting to get a piece of it."
One 52-year-old creative director from New York, who cannot be named
because
the legal case is proceeding, has been battling her husband for their
property for more than two years. "He wants the house but I want my share
of
the equity to start a new life somewhere else," she says. The fight has
taken four lawyers and has already cost more than $400,000 in legal fees.
"We didn't get divorced over the property there were other issues but
it
is now the central issue. We are fighting over how much it is worth and
how
much he must pay me to buy me out."
But as Kleier points out: "Prolonged fights aren't worth it. The equity in
the property will be eaten away by legal and real estate fees." Often both
parties will employ a number of real estate agents in an attempt to get
the
best price. "One will want the valuation to be as high as possible; the
other, who is staying, [will want it] to be as low as possible," she says.
"They may think they are fighting for their own interests but they are so
emotional that they don't realise that it is better to come to a
compromise
and sell as quickly as possible."
The creative director admits that this might be part of the problem. "It
is
difficult to get over the emotional barriers and once you have dug your
feet
in the dirt, it is hard to drag them out. We'll probably end up giving the
house to the lawyers when we finish," she says.
Fighting couples can also make it difficult for estate agents. Kleier has
known one half of a couple who didn't want to sell simply refuse to allow
her to show the property to potential buyers.
"One woman refused to make the beds, never cleaned the kitchen and would
often be out when I called," she says. "Another persuaded her teenage son
to
tell people viewing that the house had been burgled a couple times in the
past few months. Others would leave out rat poison. There are many people
out there who will do almost anything to sabotage the sale but it is
harder
to sell a dirty and problematic home and the price ends up being lower
than
expected, so neither party in the couple wins."
Another emerging trend is that of men who know they want to leave but will
persuade their wives to downscale before filing for divorce. "They will
sell
the larger, more expensive property before any divorce settlement to
protect
the proceeds," Kleier explains. "He will then file for divorce so the wife
only has claim to the smaller property. This happens a lot where the man
already has another woman he wants to marry. Very often the [real estate]
broker will know about the divorce before the wife."
One 50-year-old New Yorker, who cannot be named for legal reasons, moved
out
of a $10m property into a $2m apartment because her husband suggested
using
the capital to buy a holiday home. "I was shocked and felt very foolish
when
I realised what he had done," she says. "I thought it was a good idea and
we'd be able to spend time on the beach but two months after the sale went
through he filed for divorce and moved in with another woman. I have this
property and he has $8m."
But even when divorce isn't contentious, selling a property successfully
can
still be riddled with difficulties, as London-based Jennifer Brown found
when she tried to sell her house in Mexico following her divorce from her
Mexican husband of six years. "It would cost me more in legal fees to sort
out the mess of contracts than the property is now worth," she says of her
five-bedroom house, situated in a gated community with 24-hour security in
the old colonial district of Mexico City.
Brown bought the house in the 1970s but decided to leave the relation****p
and return to the UK in the early 1980s, giving her husband power of
attorney over the property. "He wanted to start a business so I let him
keep
the house initially to help with that. But the business folded and he
defaulted on the mortgage payments," she says.
Her husband then remortgaged the house. "I went over last year to try to
sort out all the problems and attempt to sell the property but the legal
paperwork was in a mess. The lawyer he got to do the power of attorney
didn't write into the contract the power to remortgage, which made the
current loan illegal," she says. "The bank can't repossess the house
because
it doesn't have the correct legal do***ents, I can't sell it and the legal
fees are more than the house is worth, which is about £150,000. I'm going
to
have to leave it and it will probably go to rack and ruin. There is
nothing
else I can do."
She adds: "The Mexican legal system is completely different from the UK.
In
the UK you can look information up on the internet or go to the Citizen's
Advice Bureau; you can get informed. But I found that there was no help or
clarity [in Mexico]."
On returning to the UK, Brown and her two children moved in with her
parents. She now lives in a two-bedroom flat with a garden in west London.
"I would have to move many miles out of London if I wanted to buy a
similar-size property to the one I owned in Mexico," she says. "But I am
lucky in a way. I was only able to buy the flat I have now because I
bought
in 1996, before the housing boom. If I was coming back from Mexico today I
don't think I'd ever be able to afford a decent family home in London."
Moving out of the UK or owning a holiday home can cause difficulties
during
a divorce, especially if the legal system abroad is used to file the
divorce. New laws in France, for example, mean that dependent wives get a
lump sum from the breadwinning husband, considered a redundancy payment,
in
order to help start a new life, rather than receiving maintenance.
This can mean that if the wife keeps the property she might not be able to
afford to live in it as in the case of a mother of four who divorced her
husband last year. Only a few years earlier, the couple had bought a
six-bedroom house in need of renovation in south-west France. Now,
although
she and the children can stay in it as the family home, the French law
means
that she won't get any money to help maintain it.
"My ex-husband is not giving me anything, so I don't know how long I will
be
able to stay here," she says. "It was a tough fight to get to keep the
property, which I have always dreamed of owning, but now we will have to
sell up as I can't afford to keep it on."
David Yeates, editor of online real estate website Frenchproperty.com,
recognises the difficulties of such a case. "The big problem for expat
couples concerns assets based in the UK, over which the French courts
don't
have any jurisdiction," he says. "This can mean that court orders
concerning
control of these assets need to be obtained subsequently in the UK. There
is
a big issue of enforcement here, which applies in this case, as they
jointly
hold property in the UK and in ****tugal, which would need to form part of
the settlement."
The couple will now have to seek legal recourse in the UK in order to
divide
up their remaining properties. "It will be very expensive and ugly," the
mother of four says. "Getting divorced was the easy part, dividing up the
assets, especially the property, has been very stressful. I knew it would
be
difficult but not this difficult."
http://www.ft.com/cms/s/0/a9b25c48-fb8e-11dc-8c3e-000077b07658.html
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