No matter the circumstances, losing a spouse through divorce can be an emotionally devastating experience. It is also a time when many financial matters require your immediate attention.
To help avoid making emotionally driven – and potentially harmful – financial decisions, it’s important to get advice and organize yourself. Here are six important action steps that can help protect your personal finances.
1. Update your financial accounts
When you are starting your new life as a single, you will need to change the registrations on any financial accounts that are owned jointly. Such ownership changes typically require certain documentation. It’s best to initiate this process early on, so that you can ensure you are in control of the funds that are rightfully yours.
A word of caution: Pay attention to the conditions under which you divide assets and/or shift ownership. You could face significant tax burdens when splitting up highly appreciated assets, or risk losses by selling in volatile markets. You should consult your advisor.
2. Divide or roll over retirement assets.
Pension and retirement account assets have their own set of rules when it comes to shifting or splitting the assets. You don’t have to think about dividing all accounts equally in half. There are equalization rules whereby ‘all’ marital assets are considered and split up as fairly as possible. Don’t underestimate the value of things like company pension plans. The temptation is sometimes to keep the more immediate assets like a house (which can also be a liability), and give up long term assets like pension plans. This can have detrimental effects on your long term security.
3. Adjust your income and budget.
In many cases, being suddenly single could mean reduced household income. It is vitally important to know what level of income you need to remain solvent. Start by listing your essential expenses (housing, food, insurance, transportation, etc.) and your discretionary expenses (dinners out, vacations, clothing, etc.). Does the final number match closely with what you will earn in after tax income? If not, you will need to see where you can trim your budget.
4. Evaluate your insurance needs.
What you have and what you’ll need for insurance can change dramatically when you lose a spouse through divorce. It’s important to take a careful look at all the different types of insurance that are available, to see where you may need to adjust your coverage. It is also important to ensure your spouse has coverage with you as the beneficiary, should you have children or will be depending on spousal support. Be sure to review:
Life insurance
If you are still caring for children, you may want to either purchase or increase your own life insurance coverage to make sure they will be protected in the event of your death.
Also remember to change the beneficiary on all of your life insurance if it is currently your ex-spouse, including your plans at work (unless there is a reason you want your ex-spouse to be the beneficiary, such as outlined in a divorce settlement to support children or to continue ordered spousal support).
Health insurance
Even if your spouse carried your family’s health insurance coverage, you may be able to continue it for a period of time. Talk to us to ensure you have adequate coverage to meet your unique needs.
Disability insurance
What if you were injured or sick and couldn’t go to work? Disability insurance is designed to protect you and your loved ones against loss of income. Ensure you have enough through your employer or investigate getting your own coverage.
Long-term care insurance
If you’re in your 50s or older, you may want to consider buying long-term care insurance to help keep potential costs of nursing home stays and home health care from depleting your income resources if you become seriously ill or injured.
5. Review your credit.
When you’re suddenly single, your credit can be among your most valuable assets, so protect it wisely. After divorce, you may want to request a copy of your credit report to take inventory of all the accounts that are open in your name and/or jointly with your former spouse.
You’ll want to close joint credit accounts and shift to single accounts so that an ex-spouse’s credit score won’t affect your credit rating.
6. Be sure to rewrite your Will and Powers of Attorney.
A change in marital status nullifies all previous wills, and you likely don’t want your ex-spouse making health care decisions for you in the event of your incapacity.
Good advice is a great idea.
Regardless of your financial situation or level of investment knowledge, this life event is when we, your financial advisors can have a significant positive impact on your wealth – and your piece of mind. Your advisor can ensure that you are making sound decisions and will help you understand the impact of those decisions.