Helping clients with marriage or divorce during COVID
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Helping clients with marriage or divorce during COVID

25 days ago · 5 min read

The COVID-19 pandemic has thrown financial punches at millions of individuals, including those about to get married or considering divorce. Couples in general experienced more financial conflict since the pandemic began.

One-third of Americans living with finance-driven relationship tension (34%) say the tension became more frequent since the pandemic started, an AICPA survey reveals. For those with children in their homes, that number is even higher.

Couples and individuals may reach out to their trusted adviser for help with financial challenges such as upcoming nuptials, a change in living situation, or a decision to separate.

While COVID has brought unprecedented grief and uncertainty, it has also raised questions CPAs have answered before, such as: How will a divorce affect my future finances? Does living together make more sense for us than getting married?

Below are a few insights about trends in the “new normal”:

I do

While the delta variant of the coronavirus has likely paused or shrunk some celebrations, 2021 has still been a busy wedding year. Last year, social distancing and closed venues forced many couples to either postpone their nuptials or host a scaled-down version with plans to hold a larger event later. The Knot, a wedding resource site, found in its survey that almost half of couples who had planned a 2020 wedding ultimately postponed their ceremony or wedding reception, many to dates in 2021. Couples also flocked to jewelers in 2020, who reported significant jumps in engagement ring sales.

CPA financial planners may be hearing more from engaged couples or their parents about navigating wedding expenses. The average 2019 cost of a wedding ranged from $23,500 in Columbus, Ohio, to $38,600 in Boston and $83,000 in Manhattan, according to The Knot. Some couples will also incur unanticipated costs such as rapid COVID tests to protect guests and higher prices due to vendor or supply chain shortages.

CPAs can explore ways to get couples talking about budget priorities. Disagreements about money lead to some unromantic consequences, as revealed by the AICPA survey of married and cohabitating partners. For example, financial “infidelity” is enough to end 2 in 5 relationships.

To start the conversation, consider giving couples homework to get them thinking about how they will handle their finances. Remarriage for one or both partners may present different kinds of issues as the prospective spouses will likely have more assets to protect and/or children. (See the links at the end of this article for helpful marriage-related financial planning resources.)

I do … eventually (or not)

Cohabitants make up a small share of couples, but CPAs can expect to see more as their numbers grow — and gray. Between 2007 and 2017, the number of cohabiting adults ages 50 and older grew by 75%, corresponding with the gray divorce phenomenon discussed below.

Some have found living together a practical alternative due to pandemic-delayed ceremonies or economic uncertainty. Massachusetts CPA Lawrence Carlton counseled one couple who moved into a house together pending their rescheduled fall wedding to keep everything separate — “separate bank accounts, investments, everything … because if something happens and they never do [get married], it gets really messy.”

Absent a clear law regarding distribution of a jointly owned asset, setting up a cohabitation agreement can ease complications if the pair breaks up, but is easier said than done. “To some extent, a couple in love has blinders on,” Carlton commented. “They don’t take that [advice] well.”

Whether it’s a cohabitation agreement or making lifestyle adjustments following a crisis such as a pandemic, resistance to advice is nothing new, as the client may feel that the recommendations challenge their beliefs or require change.

The biggest mistake Carlton sees is people’s reluctance or inability to react and make the necessary changes to their spending habits. When helping clients put together a realistic budget, “I try to keep the emotions out of it,” he said, telling them, “This is where you’re at now. How are you going to get by or can you?”

Keeping a neutral, factual tone to guide the discussion is one of financial advisers’ key tools. So is reflection — repeating or rephrasing what the client stated, which allows clients to hear their concerns expressed by a third party, which can help them be more receptive.

I don’t, anymore

Just as the number of weddings has been rebounding in 2021 after a sharp drop, so are divorce filings in some areas. Researchers at Bowling Green University found significant declines in divorce in 2020 across four of the five states they studied.

Tracy Stewart, CPA/PFS, said a local attorney predicted that divorces would “come back with a roar” and she has definitely seen an increase in her Texas practice.

The pandemic is partly to blame for the apparent uptick in divorces. Filings delayed due to court closures in 2020 have recently risen again, as people are exiting marriages that worsened under the stress of lockdowns, which inevitably “magnified differences people may have had,” observed CPA Karen King, a certified divorce financial analyst.

COVID-19, like other large-scale disasters, complicates some of the financial aspects of divorce, particularly in assessing the value of a business for purposes of determining assets. Typically, a business’s history helps gauge future profit or loss. “Then COVID came along,” Stewart noted, “which either devastated a business or catapulted it. How are they going to value a business in a year run amok?” In addition to reviewing years other than 2020, planners will want to look at what comparable businesses are selling for. (For more on valuation, see Tysiac, “How the CARES Act Has Affected Business Valuation,” Journal of Accountancy (June 2, 2020).)

Because of pandemic economic anxiety, combined with the eliminated deduction for alimony, spouses also may “be less generous in settlement options,” King stated. They are concerned about what the future holds for companies they own or have made significant investments in, she said. In other cases, a spouse may have much of their assets tied up in stocks that became devalued due to market fluctuations.

As CPA financial planners know, often one spouse manages financial affairs and the other is not involved; family-owned business are no exception, King said. She sees spouses who “were expecting a ton of money and it just wasn’t there,” and struggle to regain their footing after the divorce.

The significant growth of divorce among Americans ages 50 and older (the rate has doubled since the 1990s) means CPAs are getting more “gray divorce” clients. Helping them make good decisions about the future “more than ever has become an issue,” King stated.

In addition to unemployment, another gray divorce concern she cites is accounting for diminished Social Security benefits from a spouse, if that spouse took early retirement.

The Social Security Administration projects that benefits and retirement income will increase for divorced women as their working time and salaries climb. Yet, planners should note that some will still be hard hit. One in three divorced women currently in their late 40s and early 50s (Gen Xers) are expected to have low retirement incomes and high poverty rates because their marriages did not last the 10 years needed to qualify for benefits based on their ex-spouse’s earnings.

I do … want to enjoy life more

The pandemic has prompted both couples and individuals to rethink their priorities and consider early retirement. Ryan Firth, CPA/PFS, founder and president of Mercer Street Company, has been advising 50- and 60-something clients in the Houston area, some of whom received severance packages after the collapse of oil demand.

In determining whether clients will have enough to retire comfortably, he often finds that “asset allocations are not thought through.” Very few have Roth accounts, Firth said, which could help in some cases. He also educates clients on lowering their tax burden in the long term by converting just enough of their funds every year to a Roth IRA to avoid a higher tax bracket or other unintended tax consequences, such as being pushed into a higher Medicare premium.

As a result of the pandemic, “more couples are having those open conversations” about how life has changed for them, Firth stated. Reviewing tax strategies, offering budget guidance and recommending investments are among the ways a CPA financial planner can provide value to clients navigating these COVID-related changes.

Related AICPA resources

Tax and Financial Planning Tips: Marriage and Divorce, pamphlet available to AICPA members

Broadridge Advisor, available to PFP Section members (see “Getting Married” and “Getting Divorced” under Life Events)

Ann Marie Maloney

Ann Marie Maloney is a freelance writer based in Virginia. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld, senior editor, at David.Strausfeld@aicpa-cima.com.

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