Planning for your financial future can be a daunting task, but if you’re a widow or divorcee, it can get even more complicated. Without question, it’s important to have someone in your corner making sure that your interests are being considered and protected. If you have children, then their current and future needs also need to be protected.
Since every situation is unique, it’s impossible to address every possible need, but having a general guide can make a huge difference. Untangling two people’s money is messy for sure. Specific advice can only come from experts familiar with your case. However, the following tips should point you in the right direction.
First and foremost remain calm. That sounds impossible, but stressing doesn’t change your situation, and it can complicate it more because it clouds your judgement and can affect your health. Believe in yourself and know that you will overcome this obstacle and become a stronger person.
It’s important to add people to your team that will help you make key decisions. Often couples will have already started meeting with attorneys before they solicit the help of a financial planner. However the sooner a financial professional starts working on the case the better.
Clients are eager to know how their life is going to change, and money plays a big role in this. They're asking questions like, “Will I have to go back to work? Can I still pay for my son or daughter's college education? Do I need to work longer? Can I still donate to my favorite charities?” The earlier someone has a clear idea of the options for dividing assets and debts—and how this will impact their lifestyle—the better. Knowing that they have a trusted and knowledgeable advisor who specializes in divorce work can lead to better decision-making.
The advisor can help create options that become the basis of a financial proposal. The spouse enters the attorney's office understanding how to avoid financial mistakes and what is needed for financial stability.
Unfortunately, there are common mistakes divorcing couples can make. This is especially true when attempting a simple 50-50 division of assets, or when a spouse wants the process to end quickly and gives up too much to eliminate the hassle.
One typical mistake involves a wife keeping the house and the husband keeping a greater share of retirement accounts or other investments.
On the surface, it might seem easy enough to divide financial assets right down the middle. It's rarely that simple, however, and a 50-50 split can easily result in a significant disparity between the spouses' assets. That's where an expert in divorce planning can be helpful.
There are creative options for dividing assets that may actually increase the marital pot and help avoid penalties, unnecessary taxes or, worse yet, loss of benefits for one or both spouses.
Often the devil is in the details, and investigation on what can or can't happen with regard to dividing assets—such as pensions, executive compensation benefits or annuities—is critical to be sure the client's interests are protected.
Divorcing clients need money liquidity. Ignoring liquidity is a common mistake. Homes can bring known and unforeseeable maintenance expenses that should be reviewed by a financial professional. If the family home is not already sold, it would be wise for the couple to have the home inspected so that everyone is aware of possible upcoming maintenance costs. These expenses can be negotiated as part of a settlement.
Other assets require analysis, too. For example, a nonworking or low-income spouse may be awarded a retirement account, but withdrawing from the account may come with significant taxes and penalties. For this reason, looking at other options before agreeing to a split involving hard-to-convert assets can be a great help.
Complex assets that divorcing couples may own could include multiple real estate properties; executive compensation, such as stock options, employee stock ownership, deferred compensation plans or restricted stocks; pension plans; and businesses. These situations require one or more financial professionals who can explain to the client what can or can't happen with the division of assets.
Frequently, spouses have differing levels of understanding regarding financial assets. One spouse may not have been privy to many financial details during the marriage. There is a lot of fear surrounding what they don't know. Being able to help them to identify and understand what assets or debts exist and to illustrate different scenarios to give them a feel for what they may expect financially allows them to feel empowered and better prepared for their future. At the end of the day, that is really the most important thing, feeling empowered and as prepared as possible.
Never be afraid to ask questions, get other opinions or do research until everyone feels satisfied that to a reasonable degree both clients will go from point A to point B and will be able to thrive in their new lives.
Women live longer than men by about 8 years, so it’s important to plan for this longevity. Women often express that their husband handled finances during the marriage, and for this reason they had gaps in basic financial literacy, such as understanding how to plan for the financial transition from a two-person household to a one-person household.
For this reason it is crucial that both you and your significant other meet with a financial professional sooner rather than later to ensure that you are not only comfortable but also involved in the planning if your spouse were to pass away.
One widow shared that after her husband died, her household expenses did not decrease by the same amount as the decrease in the Social Security benefits that resulted from his death. A financial professional can educate you on how Social Security works for widows, how to manage claiming your benefit or survivor benefits, and the importance of understanding Medicare benefits, deadlines, and hidden income penalties for some higher tax brackets.
Whether you are widowed young, about to be widowed, or widowed for 10 years, all roads lead to income. That’s true whether you’re creating an income stream today or for the future. A financial professional can help you determine what income you need to live the life you want. That means that you need to have a plan for cash flow to ensure that your savings can generate enough reliable income to meet your goals.
One of the greatest fears that women have is of running out of money. This fear can be mitigated by implementing a safety-first approach to your income planning. Utilizing protected lifetime income is like having your feet on solid ground, knowing that your needs are covered no matter how the markets perform. Then you only have to focus on pursuing your passions and living a full life.
Regardless of your situation today, it is comforting to know that with good planning, it is possible to come out of difficult times stronger and better equipped financially.