Mismatched incentives in family court ordered marital home sales

Posted Friday, April 27th, 2012 by Gregory Forman
Filed under Litigation Strategy, Not South Carolina Specific, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys

Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results.”  I would not claim South Carolina Family Court Judges are insane but few of them were economics majors as undergraduates.  Econ-major lawyers tend to go into areas of practice other than family law.  However an economics background is useful for developing an understanding of incentives and how incentives can encourage or discourage behaviors.  In the area of judicially ordered marital home sales, the family court could vastly improve compliance if it gave greater consideration to the incentives it creates.

Judicially required marital home sales are the area of family law in which I see judges making the most misguided decisions–allowing disincentives to sell the home to frustrate the order’s directives.  If neither party resides in the marital home and both parties are having to contribute substantially to the ongoing cost of the home, such homes tend to sell quickly, as the sale stops the parties from hemorrhaging current earnings.  In such cases, these orders are typically effectuated without much drama or litigation.

If one party resides in the marital home but is required to pay all home expenses pending the sale, there can be, but does not have to be, mismatched incentives.  If the cost of paying these expenses is less than the benefit of remaining in the home, there is a disincentive for the party residing in the home to sell the home.  If the cost of paying these expenses is greater than the benefit of remaining in the home, the other spouse may have an incentive to delay the sale in order to increase his or her equity interest in the home (or decrease his or her possible deficiency obligation) as the residing spouse contributes principal in paying the mortgage.  Still the incentives tend not to be greatly misaligned in this situation.

However I occasionally encounter a situation in which the family court orders the marital home to be sold with one spouse remaining in the home and the other spouse paying the bulk (sometimes all) of the home mortgage and related expenses.  In allowing one spouse to remain in the marital home while contributing little to its upkeep, and requiring the other spouse to contribute greatly to the marital home while obtaining no benefit, the court creates ridiculously mismatched incentives.  The result is always a litigation explosion as the occupying spouse works to delay the home sale and the other spouse urgently tries to sell the home ASAP to end the cash-flow drain.

The “squatting” spouse can frustrate the home’s sale in myriad subtle–and not so subtle–ways, few of which are likely to incur contempt sanctions: failing to cooperate with the realtor; delaying in returning calls or responding to realtor requests; deigning to make the home available when prospective buyers want to view it; allowing clutter or deferring routine maintenance to detract from marketability; being unreasonable in setting the asking or sales price.  The “squatting” spouse can use the leverage of the ability to frustrate the home’s sale to extract concessions from the other spouse.   I have yet to see a marital home sell in this situation without protracted litigation.

A judge’s order may require a marital home be sold but that order’s incentives may greatly discourage one party from selling the home.  Failure to consider how incentives guide behavior allows this situation to occur and recur.

One thought on Mismatched incentives in family court ordered marital home sales

  1. Of course the drastic reduction in real estate values has changed a lot. When the house is upside down there is no easy way out for anyone. It was a lot easier when the houses had equity and everybody got a check at closing so they could go out and buy a condo to live in with their paramour.

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