I have known Susan Freedman for over ten years now. We do a lot of real estate transactions together in New York and some of her deals arise from divorce situations. When you combine divorce and money, it can get messy. Even more so, throw some real estate in that might be under mortgaged or undervalued and you have a real headache. Ultimately, one of the partners will be taking the marital home, but along the way, there are errors made. I asked Susan to write a short piece on the “don’ts” of real estate when dealing with a divorce and this is what she gave me. Thanks, Sue. As always, your insight is quite fabulous with a touch of New York sarcasm!  Thanks for filling in as my guest on Mortgage Monday.

Divorce always presents a combination of all the most negative emotions. When you are swamped by feelings of anger, sorrow, and pain, it is easy to fall into the trap of mismanaging your finances to your own personal detriment. The following items are things you should NEVER do and that includes the time period while you are getting divorced:

1. Don’t stop making your mortgage payments on time. Some folks stop paying their mortgages in an effort to force the other spouse into an advantageous settlement. Instead what actually happens in real life is that the spouse who is either paying his or her share of the mortgage payments without contribution or who is not able to make the mortgage payments usually rushes into court for judicial relief.

In my experience, judges want to hear a very good reason why payments are not being made. If they don’t hear one, this creates the opportunity for a contempt hearing against the errant spouse. The fallout from a contempt hearing can be quite damaging. First, lawyer’s fees for both sides almost always far exceed the amount of the mortgage payments in question, thereby illustrating to the judge that either or both of the parties could have made the mortgage payments. Therefore, there was no good excuse for failing to make the payments. Secondly, the failure to make mortgage payments has a devastating effect on one’s credit rating, making it very difficult, if not impossible, to obtain a home equity line of credit (HELOC) on the equity left in the marital home. This second development is also known as “shooting yourself in the foot.”

2. Don’t stop paying your income taxes. While it may take some time for your spouse to realize that you are not making your appropriate tax payments, the IRS will probably find out sooner rather than later, especially with all the new e-filing going on. When that happens, the IRS can either freeze your accounts or lien your real property, including the marital residence. In addition to not being able to write a check for your own groceries, you will also be inconvenienced by a downward impact on your credit rating, also known as another form of “shooting yourself in the other foot.”

3. Don’t charge up a storm. Some bills will be marital, but not all of them. If you are wasting money on taking your new extramarital love interest on vacation, your spouse will likely claim that you are wastefully dissipating marital assets, and ask for a credit against your share of joint property. Not to mention, the credit cards often print the name of airline ticket passengers on the monthly credit card bill – how embarrassing!

4. Don’t further encumber your home with more debt. There are those among us who would attempt to take out a HELOC or a second mortgage on the marital home without telling the spouse. This, of course, usually involves committing a fraud and/or a felony. In addition, it is spectacularly stupid, inasmuch as the “borrower” almost always gets caught at a later point, and ALWAYS leaves a comically huge trail of evidence and witnesses. Of course, once the wise guy or gal is identified, there is a nose dive on the FICO score, the credibility scale, and the equitable share of marital assets. However, if one becomes a guest of the state, I understand that food and shelter is provided free of charge, as long as you keep turning out license plates.

5. Don’t lose your job. Some folks think that, if they lose their jobs, they won’t be liable to pay the bills. This is a very old trick, and most every judge has seen this movie. If it can be established (and the evidentiary standard on this one is not too stringent) that the major breadwinner has voluntarily ceased working, a judge is empowered to impute income. That means, a judge can say to the “slacker” that he or she could be earning much more money, so we’ll just pretend that he or she does earn that amount, and the “slacker” has to pay based on that imputed amount. This puts the “slacker” in a very bad position: how to come up with the money when the job has already disappeared? If he or she then doesn’t pay as ordered, we go back to court for a contempt hearing (see #1 for the unpleasant consequences listed above).

So now that you know the Don’ts. Next time we will talk about the Do’s.

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Susan Freedman is an attorney practicing in White Plains, New York. Ms. Freedman practices primarily in the areas of real estate and divorce law and also provides mediation services. To contact Sue email her at sf(at) susan freedman.com or call her offices at (914) 948-1400