January jump in divorces offers advisors opportunity to provide value

The month of January sees a jump in gym memberships every year as Americans seek to fulfill their new year’s resolutions of improved health. January also sees a one-third spike in the termination of a different type of vow — marriage vows — and, despite the sad circumstances, that creates opportunities for financial advisors to build their businesses.

“January is the number one month for divorce, as people seem to want to bring in the New Year with a fresh start and an end to an unhappy marriage. It is commonly found that married couples, especially those with children, wish to avoid disturbing the winter holidays and often hope for a last-minute change in a partner’s behaviors,” according to the Doyle Law Group, a family practice based on Raleigh, North Carolina.

Doyle Law Group says that people typically start researching divorce online before January but have to wait until the end of the holidays for attorneys to be back in the office. As a result, the second and third weeks of January generally see the highest rate of divorce filings annually, with the Monday that children return to school after winter break having the highest rate of divorce filings in a single day.

Although this is a sad fact for families, it does provide financial advisors with the chance to prove their value over a short, intense period and cement a relationship that could extend for many years to come.

“It’s like dating. You are getting to know each other," said Mariella Foley of Round Table Wealth Management, specializes in advising clients in the midst of divorce. "They start to understand where you are coming from with the advice that you give and you are getting to know how open they are to accepting your advice. That relationship will be one of the factors as to whether you want to work with them long term.”

Sarah LePhew, vice president and financial advisor at Wealth Enhancement Group, said that when a couple she works with decides to split up, her first objective is transparency.

“I want to serve as an equal and impartial aid to both by providing information related to the assets that they own and the tax implications of current and future distributions of these assets," LePhew said. "Then, I like to update each client’s financial plan — individually — to reflect the changes in assets, liabilities and income so that they have an understanding of the financial impact of the decisions made in the divorce agreement.”

Sarah Keys, senior vice president and financial advisor at Wealth Enhancement Group, said advisors need to make sure that clients know that until the divorce is final, joint accounts and accounts for which the spouse has power of attorney, like an IRA, only require the authorization of one party. Still, many states have an automatic injunction against unilateral actions with regard to the marital assets once the motion for dissolution of marriage has been filed.

“While the advisor is not bound by that injunction, if one party makes an unusual request while the divorce is pending, it is probably best for the advisor to notify the client that they will also be getting authorization from the other spouse," Keys said. "Although not technically required, this helps reinforce the advisor’s role as an independent third party when it comes to the divorce.”

When it comes to speaking to clients about which assets are most important to hold onto through divorce proceedings, Keys advises lawyers and clients not to overlook the future tax consequences of selling various investments.

“If one spouse gets a bunch of low-basis stock in a taxable account but needs to sell the stock to maintain one’s lifestyle or cover a large, unanticipated expense after the divorce, there can be a shock when they realize that there is a large tax bill associated with the sale that they hadn’t thought about when they accepted the assets in the divorce proceedings,” Keys said.