The New York Times
August 12, 2007

Buy Low, Divorce High

By CHRISTINE HAUGHNEY

FOR years, Michele Kleier, a real estate broker on the Upper East
Side, knew why one of her most persistent clients was calling even
before picking up the phone.

The client, a former high-ranking fashion executive and perpetual
volunteer at her children's private schools, was checking the price
she could get for her nine-room co-op in a prewar building. When the
market reached a high, she told Ms. Kleier, she planned to divorce her
husband, sell the apartment and live on her share of the profits.

Last year, Ms. Kleier delivered the long-awaited news: Manhattan
luxury apartments were at a peak. The client went through with her
plan. Now the woman calls from her new condo in California, raving
about the weather and the distance from her ex-husband.

"She felt that she couldn't walk out on him until she had the money to
move away and buy something on her own," Ms. Kleier said. "The real
estate market allowed her to buy her freedom."

A little-noted side effect of the property boom of the past decade has
been the real-estate-enabled divorce. Home values might have slid in
some markets, but in the New York City region, where prices remain
high, divorce professionals like therapists and lawyers, along with
real estate brokers, say unhappily married couples are cashing in
appreciated homes to underwrite a split.

"The equity that there is in real estate is one of the impetuses why
there are so many divorces," said Nancy Chemtob, a Manhattan divorce
lawyer, adding that the net worth of her clients has doubled in the
past three years mainly thanks to real estate. The price of the
average Manhattan apartment was $1.3 million as of June, up 7 percent
from a year ago, according to the real estate brokers Brown Harris
Stevens.

A spouse who has not worked, like Ms. Kleier's client, might decide
that with a divorce settlement enriched by real estate, it is possible
to maintain a comfortable standard of living. Or a breadwinning spouse
might recognize that even after dividing community property, it will
be possible to live well as a single person.

"No matter what the net worth of the client," Ms. Chemtob said, "the
$3 million apartment is now the $7 million apartment, and the $7
million apartment is the $14 million apartment. Half of a lot is a
lot."

That is how Sharon Sheinker thinks about the real estate equity she
and her ex-husband accumulated over a 16-year marriage, which she said
made the decision to legally separate easier.

The former couple made enough on their first apartment in New Jersey,
and then on a second home on Long Island, to build a five-bedroom
house in a gated community in Dix Hills, on Long Island, four years
ago, for $1.1 million.

They recently signed a contract to sell the house for $1.4 million,
less than the asking price of $1.579 million. But Ms. Sheinker
calculates a $60,000 profit each year over the past four years. She
will use her share to buy a smaller house in Dix Hills and continue to
run a charity, A Gift From Alexa, in honor of her 6-year-old daughter,
who is autistic.

"Money is freedom," Ms. Sheinker said. "I don't need the mansion. We
made enough money to be able to get divorced and support two
households."

Economists are familiar with this phenomenon. Even though divorce
rates are declining over all, as far back as 1977 the economist Gary
Becker showed that couples experiencing any unexpected, drastic rise
in net worth are at risk of divorce. (The same holds true for a
drastic decline in net worth.)

Extrapolating from survey data, Dr. Becker concluded in The Journal of
Political Economy that "a greater deviation between actual and
expected earnings increases the probability" of divorce.

Although couples who see their incomes rise steadily generally stay
together, those who make more money than they ever expected are
vulnerable to divorce. They realize that they are less financially
dependent on each other and that they might have chosen different
spouses if they had more choices at the time, said Dr. Becker, who
teaches at the University of Chicago.

Dr. Becker, who won the Nobel Prize in 1992, also explored in his
divorce study the economic argument for what many people today call
trading up, or finding a trophy spouse.

Noting that 75 percent of men and more than 70 percent of women
remarry within 15 years of a divorce, he found that divorced men with
higher earnings have the greatest likelihood of remarrying. This
implied, in his view, that men who have come into wealth have an
incentive to divorce because they believe they could better their
situation.

"They feel, given their status now, they can find other people of a
type that appeals to them more than when they got married," he said in
a telephone interview.

Kenneth Mueller, an East Village psychotherapist, says he has about a
half-dozen clients who are real estate executives. Some, he said, have
used windfall wealth from property to strengthen their marriages
like paying for counseling or adopting children. But others are
emboldened to divorce and remarry. He said some men conclude that they
can find a new spouse because their first wives were "not what I
really wanted."

Of course, not all couples sitting on greatly appreciated homes are
headed for divorce court. The likelihood of divorce depends on the
strength of a marriage before the advent of unexpected wealth,
according to Evelyn Lehrer, an economist who expanded on Dr. Becker's
findings in 2003.

In her study "The Economics of Divorce," published in the book
"Marriage and the Economy: Theory and Evidence From Industrialized
Societies," Professor Lehrer concluded that couples who are likely to
divorce after an unexpected change in assets often had weaker
marriages to begin with. It is not the new wealth that causes the
divorce; the money is just the catalyst.

Stephanie Coontz, the author of "Marriage, a History: From Obedience
to Intimacy, or How Love Conquered Marriage," compared the current
Gilded Age to an earlier one in the 1920s, when, she said, divorces
spiked at a time of rapid wealth creation. In times when people
accumulate wealth, she said, they often think they don't have to abide
by society's conventional rules.

"When people get a lot of wealth in a hurry, it's more easy to act
upon their impulses," she said. "You get used to sending back a steak
because you don't like it. You send back a wife."

Real estate these days seems much on the minds of couples who are in
counseling. Elyse Goldstein, an Upper East Side psychologist, said
that half the couples she has seen in recent years have brought up
real estate as a relationship issue, and 15 percent regarded it as a
serious one.

"Real estate has become a language of emotional barter in terms of
registering pains, hurts and resentments," Dr. Goldstein said. "If
they can't have love, they can have real estate. There are a lot of
fights about who is going to benefit from the windfall."

SUSAN KATZ, a fashion industry sales executive, said that real estate
battles with her ex-husband over their home in Roslyn Heights, on Long
Island, have dragged out over three years, involving three lawyers and
$350,000 in legal fees.

She said that real estate was not the original cause of the divorce.
But it has become the central issue as she and her ex-husband fight
over what the house is worth, and how much she must pay to buy it from
him.

Ms. Katz finds that some women who are divorcing can't cash in on the
value of a home because they or their spouses borrowed against it.
"Women think when they get divorced they can have half of the house,"
she said. "Most women don't realize how much this house is mortgaged."

And then there are cases in which couples decide a divorce settlement
would ultimately be too costly because of the on-paper appreciation of
their property.

One New York real estate executive, who has separated from his wife
and would not speak on the record because he is unsure if he will
divorce, said most of his peers in the industry who are unhappily wed
seem to be staying put. They don't want to carve up the real estate
portfolios they bought or built during the boom.

"I know plenty of people who are enormously wealthy and just don't
want to cut it up," he said. "They find it hard to divide the real
estate."

Copyright 2007 The New York Times Company