UNHAPPY AT HOME? Think About What You Own
Contrary to the prevailing belief in 1980 when Pennsylvania became a no-fault state, liberalization of the divorce laws did not prompt an avalanche of divorce. After many years focusing my practice in this field, it became clear that people actually take marriage seriously and rare has been the instance where a potential client made a hasty decision to end a marriage.
Unfortunately, that does not end the discussion. People in unhappy marriages do a poor job of communicating their feelings. Equally concerning is how spouses will ignore their mate’s unhappiness and plow forward in life hoping things will get better. Lawyers can’t really be of any help here. Clients arrive as a kind of “cooked cake” which is to say they seek counsel only after the relationship is collapsing.
Also unfortunate is how couples behave while their marriages are suffering. The most common behavior is what we all expect; late nights out, extramarital relationships, unrestrained spending. But another common by-product of an unhappy marriage is what can be bluntly termed “stupid investing.” Stupid investing has a couple different aspects. In its simplistic form it is resort to speculative investments. In January 2021 an S&P market index for cryptocurrencies started the year at a little over $1,900. After four months it stood at $5400. Ten weeks after that values had declined by almost half. Eighteen weeks later cryptos peaked at $6,100 in November. Today the index is down 70% from the high. Billionaires like Mark Cuban and Elon Musk can afford to surf those waves. People reading this blog, even wealthy people, cannot.
The cryptocraze is only the most glaring aspect of speculative investing. People who aren’t happy at home seek happiness in other places. And the stock market is always beckoning. This is particularly true for men. They know that purchases of fancy cars or fancy clothes are going to be met with a look askance. But many can trade a portfolio away from mutual funds to the likes of Tesla, Amazon, or, worst of all, penny stocks without anyone in the house even becoming aware. I don’t intend to beat up Tesla and Amazon but what they do is essentially stable. They sell cars or “everything.” So how is it that a car company that traded at $28 two years ago is now trading at 10x that price and 20% less than it was in the Spring of this year. And what takes Amazon from $160 down to $107 in roughly eight weeks this Spring? Experience tells us that roller coaster stocks can be as exhilarating for unhappy couples as any ride at Kennywood or Dorney Park. If you want the coaster to go faster, just enter the world of penny stocks or options. It’s “Fun, fun, fun” until the divorce court, the option expiration or the margin call takes the T-bird away. As we tell clients who have traveled the speculative road: “If you win, expect to share it; but if you lose, you may be eating the loss alone if you can’t show that your spouse authorized the transition from utilities to YouTube” (GOOGL; down 1% every week since April).
Just as problematic are issues associated with liquidity. The August 29, Wall Street Journal reports that as interest rates and residential real estate prices have climbed “small investors” have begun shopping for residential rental units in backwater markets. They shop these on websites like Roofstock. A San Francisco investor picked up a three bedroom home in Jackson Mississippi for $265,000; the price of a trailer in his neck of the woods. Unfortunately, homes in remote places and even homes in “nice places” (like the seashore) can take months or years to sell if the market turns cold. So, we have had clients who “invested” in the shore house planning to sell it when the kids are ready for college and use the proceeds for tuition and costs. Some have found that the kids might be ready for college, but the shore home market has hit a lull. Small town investing can seem low priced until the principal employer in town pulls stakes or the water system fails (as was reported to have occurred today in Jackson, MS).
We recently wrote about how family businesses can provide value and income but selling your 20% stake in Family Partners, LLC is not easy when the only other investors are your parents and your siblings. Even more concerning are the unhappy couples who decided that the pandemic was their invitation to bet it all on starting their own business. Such investments consume liquidity with abandon. The Bureau of Labor Statistics data from 2021 indicates that 20% of new businesses fail after one year and 50% are gone after five. Gone as well is the liquidity which launched the business in the first place as insufficient capital is a primary reason why new businesses fail.
The moral of the blog, if blogs can have morals is “Never confuse speculation with investment” and if you are not happy at home, keep it in cash or something that can be wired to you in a week. The sadness rightly associated with the break up of a family does not need to be compounded by a loss occasioned by an irrational pursuit of a “win.”
