January Splits Leave Divorced Couples in Need of Financial Planning

January is not just the start of another year. It has another, sadder claim to fame: it’s the most popular month of the year for divorce.

Many married couples considering divorce wait until after the holidays to file because they don't want to ruin family holiday celebrations, experts say.

Divorce filings are a third higher than normal in January, according to the American Academy of Matrimonial Lawyers.

“For many attorneys, the first week of the new year is, in essence, their ‘Black Friday’ due to all of the calls they receive from unhappy spouses looking to split up,” said Kathryn Dickerson and Alan Plevy of SmolenPlevy in Vienna, Va., in a new research note.

Unfortunately, too many of those spouses go into a divorce unaware or even indifferent to the financial cost of a marital split-up.

Two-thirds of married individuals have no financial plan in place for a divorce, a new TD Ameritrade survey found. Seventy-two percent of men and 62 percent of women “are confident” they’ll be fine, financially, without professional financial help during a divorce.

“Advance planning could provide a much-needed boost in financial security for those who unexpectedly end up alone at any phase of their lives,” said David Lynch, managing director and head of branches for TD Ameritrade. “Considering divorce or the loss of a spouse is a smart addition to any long-term financial plan. It’s no different than planning for things like a major illness, disability or potential long-term care needs.”

Pre-Planning Encouraged

Couples need to treat divorce like any major lifetime financial event, other experts say.

“Most people plan for everything in their lives,” said Kyle McFarlane, partner at the Denver-based family law firm Broxterman Alicks McFarlane. “We have living wills, life insurance policies, trusts, retirement accounts, and savings accounts. What we do not typically plan for is divorce or child custody litigation.”

While a small few forward-thinking couples sign prenuptial agreements (though most do not), the vast majority of Americans bypass the thought of a divorce, McFarlane added.

“When I warn my clients about how much a divorce often costs, I tell them that no one has a divorce savings account and that we will work together to figure it out,” he said.

Where can advisors and their clients start with a good financial plan before a divorce? Begin that campaign with trusted professional legal help – the one expense you should pay prior to a divorce.

“Very often, investing in a good divorce attorney, even if just to look over the financial disclosures and the final paperwork, is money well spent,” McFarlane said.

In addition, start focusing on saving money during a divorce. Start with these tips, McFarlane said.

1. Be organized when sending your attorney documents. The better organized they are, the less time your attorney should need to spend organizing them and preparing them for disclosure.
2. Know your finances. Learn more whenever you can. “So many times we represent one party who has absolutely no clue how the bills are paid, how much their spouse makes, where the paychecks go,” he said. “This makes it much more difficult to understand in a high-conflict situation.”
3. Utilize your accountant and/or CPA. Sometimes they can speak with your attorney directly to expedite the process.
4. Speak with your CPA or tax attorney about any tax implications. Your attorney can certainly notify you of general tax implications but they are not usually tax experts, McFarland said. The tax code is complicated and constantly changing. Good attorneys will flag areas for you to check with your CPA.

“Financial players can play a huge role in mapping out a financial strategy for divorce,” McFarlane said. “A financial planner can help come up with the best, most effective way to hire an attorney and ensure divorced individuals don’t end up drowning in debt.

‘More Empowering’

Divorcing individuals should also have assets in their own name, but it should be done with transparency if they’re married or in a committed relationship.

“It’s more empowering if they have a certain level of financial autonomy,” said Christine Hennigan, a certified financial divorce analyst at Penn Mutual. “If the couple divorces, hiding assets or moving money around without the other party's knowledge can come under scrutiny, especially in the event of a divorce or a troubling relationship situation.”

Women, in particular, should have their own the funds available to consult with an attorney or a certified divorce financial analyst, Hennigan added.

“In some situations, women don’t even have money to seek out professionals to leave what could be an abusive situation,” she said.

Divorce is hard enough without going broke. Investment advisors, working in tandem with good lawyer and tax accountant, can play a huge role in keeping divorcing clients solvent in a marital split.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected]