A woman who finds herself in the jaws of a divorce or who has recently lost her spouse and now struggles to call herself a widow is forced to deal with many issues. These traumatic events can cause a person to experience emotional stress, fear and — perhaps most common and detrimental to functioning on a day-to-day basis — confusion. Often, she has not been intimately involved in the family finances or long-term financial planning, and she suddenly has to become an expert on these matters.
As a financial adviser, I often see situations where one spouse handles the finances and the other typically is in the dark. As you might guess, the man in the relationship is commonly the person most involved with the family finances. The ramifications of this are that women often need to get up to speed on the finances in a fire-drill fashion and make some very critical decisions. Clearly, this is not an ideal situation but one that must be dealt with and, with the right approach, missteps can be mitigated or avoided altogether.
With some preparation and planning, you can protect your financial interests and take charge of your future well-being.
REGROUP AFTER A SPOUSE DIES
During more than 20 years of practicing as a financial adviser, I have found that the best single piece of advice that I was able to provide to a person who has lost her spouse is, “Don't make any major decisions for at least one year.” If possible, try to defer decisions like moving across the country to be closer to friends or family, buying a new home or moving in with a new companion (yes, I've seen this) within a short period of time after the death of a spouse. Often, these decisions don't end up soothing the pain as expected and can be costly mistakes. During this time of extreme turmoil, it is important to do your very best to pick up the pieces without causing additional stress or problems to solve further down the road.
Start by sitting down and creating an inventory of your assets and liabilities to give yourself a good understanding of where you stand financially. There are some concrete steps to doing this methodically:
• Begin by gathering and organizing your financial statements. Locate all previously filed tax returns, as these documents can be very helpful in locating all of your financial assets. Take this opportunity to make sure that all taxes have been paid and are up to date.
• Contact the three major credit reporting agencies and request a copy of your credit report.
• Locate your insurance policies and contact each company to notify them of your spouse's passing and gather data about death benefits. If you receive a life insurance benefit, set it aside until you are in a better position to decide what to do with it.
• Once you have gathered all of your documents, review your cash-flow and make sure all of your bills are paid.
• Don't buy or sell investments you don't understand.
Once you feel that you have a clearer understanding of where you stand, seek financial advice from a financial adviser, CPA and possibly an estate attorney.
STAY FOCUSED AFTER A DIVORCE
Unlike the death of a spouse, divorces come from a different emotional place — anger — and that can be just as damaging as dealing with grief. Using money as a weapon in a relationship can be quite common.
For instance, one of the biggest mistakes that I've seen begins when one of the spouses goes off the deep end with regard to spending money in a mad scramble to gain an upper hand. Whether sabotaging of the finances is intentional or not, ignoring bills because you assume the other spouse is taking care of everything is problematic. Not being informed about where the other spouse is spending money on credit cards, for example, can be very detrimental to one or both parties.
When it comes to money, people sometimes do some very dumb things, and it is imperative that you are aware of what's really going on with your family's spending before you find yourself in a bad situation that you have to try and repair. One step to help prevent this is to have both spouses sign up for a credit-monitoring service and keep an eye on the subsequent reports. It may seem unnecessary, but even the most rational people can become irrational in an instant when anger is the key driver to decision-making, and this approach allows you to make sure that you can rectify an issue before it gets too far out of hand.
While you are going through separation and divorce proceedings, don't attempt to hide assets or income, as this is very easy for a good divorce attorney to uncover, typically by reviewing your tax returns. Both spouses should find copies of all previously filed tax returns and provide a copy to their counsel. Take a financial inventory of your assets and liabilities and make copies of all financial statements.
Don't sign any documents without reviewing them with your divorce attorney.
Those facing divorce should assess their current and post-divorce financial situation. Start by doing the following:
• Compile monthly bank and investment statements.
• Identify assets, their value and whether they are owned jointly or separately.
• Assess your and your spouse's liabilities and obtain credit reports.
• Enroll in a credit-monitoring service for both you and your spouse.
• List income and expenses you'll have once you are divorced.
• Know the employee benefits that you and your spouse are entitled to, as well as the life, health and disability insurance policies that you both own through your employers.
• Consider child or spousal support: Will you be paying or receiving it?
• Determine whether any beneficiaries should change on your life insurance policies, investments, wills, etc.
• Determine whether your home will be transferred to either spouse as part of the settlement.
REACH OUT TO AN ADVISER FOR HELP
Going through a divorce or becoming a widow requires you to examine your entire financial life — a daunting task even in the best of circumstances. Don't try to go it alone. Financial planning is essential, for both the short and long term. Get an objective review of your finances from someone who can evaluate your financial position and provide guidance and suggestions. An adviser can help to increase your financial literacy and empower you to make informed decisions that are best for you and your family. The more knowledgeable you are, the better prepared you will be when you are in charge of your financial future.
Interviewing several financial advisers is the best way to learn answers to questions such as how each planner earns money and what qualifications each planner has. Your adviser should be experienced in working with widows or divorcees. Do your homework and ask how many clients they have in your situation. You will also want to get references and check them out carefully.
Once you've chosen an adviser, gather all your financial information and engage with her to rework your long-term goals given your new situation.
Attention is rarely given to the education of both spouses on financial matters. Being literate about your financial position and planning is not an exciting endeavor for most, but it's a critical piece contributing to your present and long-term well-being.
Both spouses should be in all meetings with the financial adviser. You do not need to be financial experts if you are working with competent advisers, but it's critical that both spouses be part of the process.
Ryan Wibberley is a financial adviser and founder of CIC Wealth.
