Whether due to the death of a spouse, a divorce, retirement, or some other major life event, women in transition through major life changes face unique challenges. In some cases, they are facing the sole responsibility of developing a financial plan for the first time. In other cases, they are entering a new life phase that requires a completely different financial approach from what they are accustomed to. But whatever the reason for the transition, several principles are important for women to keep in mind as they navigate the often-confusing transitions brought about by bereavement or divorce.
1. You’re not alone. Odds are, most women will become single at some point in their lives, either because of the death of a spouse or due to divorce. About 43% of first marriages in the US fail, and for second marriages, the divorce rate rises to 60%. This means that some 15 million women in the US are divorced at any given time, and another 11 million are widowed. Taken together, these numbers indicate that some 80% of women in this country will be single for some period.
2. Your questions are valid; get the answers you need. Women tend to ask more questions than men, especially about finances; it is important for you to clearly understand without feeling you are being talked down to. Women also tend to take a different attitude toward risk than their male counterparts. Note that I didn’t say they were more risk-averse; actually, women are willing to accept an appropriate amount of risk as long as they understand it and how it fits into their overall financial picture. The point is, if you are facing the transition to being single and taking full responsibility for your financial life, you are entitled to ask all the questions you need and to fully understand your options.
3. Your financial plan should include more funding for retirement than you probably think you’ll need. Several studies have demonstrated that women typically don’t think they’ll need as much money as men, despite the fact that they are likely to live longer. Roughly 36 percent of unmarried women—versus 29 percent of married women—think they will need $250,000 or less to fund their retirements. Men, on the other hand, typically estimate $500,000 or more. Your financial planning after divorce or bereavement should take this reality into account.
Financial Planning for Bereaved Women
Few things are more difficult to navigate than the fog of grief that enfolds women dealing with the loss of a spouse. Especially for women who have been accustomed to letting their husbands “handle the money stuff,” the days following the death of a spouse can be filled with confusion, anxiety, and an almost paralyzing fear of the future.
Getting through these early days may be greatly eased by a few basic preparations, ideally taken before the spouse’s passing. These steps should include (but not be limited to):
- Creating a list of all financial accounts, including the names and contact information of brokers, financial advisors, bank representatives, insurance agents, and others who can help the surviving spouse work through necessary decisions and transactions;
- Having a basic knowledge of regularly recurring household expenses and bills, including due dates and amounts;
- Knowing where important estate planning documents are located, including wills, trust documents, powers of attorney, and healthcare directives.
After the funeral or memorial service, it’s probably time to have a series of conversations with your financial advisor to begin building a strategy for what comes next. It will be important to discuss:
- Reviewing cash flow and creating a new budget;
- Evaluating household debt and other expenses;
- Structuring investments for continued investment and current income (if needed):
- Assets for investment may include life insurance proceeds, the deceased spouse’s retirement accounts (IRAs, 401(k)s, 403(b)s, etc.), and any existing investment accounts.
- Income resources may include spousal or survivor Social Security benefits, pension survivor benefits, veteran survivor benefits, and others.
Over time, as you become more accustomed to handling your monthly cash flow and other day-to-day considerations, you should continue meeting with your financial advisor to refine planning for retirement income, investments, and other financial needs. It is usually best to delay decisions with long-term implications (selling or keeping the home, continuing or returning to active employment, etc.) for at least six weeks to three months, until you have had time to process the loss of your spouse, and you are less likely to be impacted by emotional decision making.
Divorce and Financial Planning
Like losing a spouse to death, going through a divorce can be emotionally draining and painful. But it will be even more challenging if you and your spouse don’t agree on how money should be handled, either during the marriage or the divorce process. Take the following important steps to prepare and protect yourself:
- Organize your financial records; make copies of documents and store them in a secure place where only you have access.
- Start putting money away for legal and other professional fees. You also need to cover your day-to-day living expenses, keeping in mind that the divorce process can take longer and cost more than anticipated.
- Open new accounts, preferably at institutions where you don’t have joint accounts.
- Get a copy of your credit report to monitor your credit and make sure joint debt is not being accrued on existing accounts.
- If you are going through a divorce, update your will, health care directives, and beneficiary information first, before the divorce is finalized, if permitted by law. You likely don’t want your future ex-spouse to make medical decisions on your behalf or inherit your assets. Revising your other estate planning documents, if needed, can wait until after the divorce is final.
As you and your spouse work through the details of dividing assets, here are some things you will want to clarify with your attorney:
- Marital property must be divided equitably and fairly, and this does not always mean it must be divided equally. Especially with midlife divorces, both spouses typically have established careers and have made investments, and it is very important for women to be calm, clear-eyed, and strategic as they navigate the division of the estate. Much depends on the nature of the property: divvying up stocks, bonds, and other marketable securities can be fairly straightforward, once the initial decision is made about what constitutes a fair distribution. But real property, stock options, and collectibles can present more complex problems.
- Discussion about the marital home can cause emotions to run especially high. But it is also an asset, and you need to do your best to view it as such. It rarely makes sense for one partner or the other, both now on a single income, to try and retain the marital residence. If the decision is made to sell, it is urgent to obtain a fair appraisal that both parties can agree on. When this is not possible, each party may wish to order an appraisal, and the two can be averaged to arrive at a mutually agreeable selling price.
- If both parties have established careers that include 401(k)s, IRAs, and other retirement plans, this may be much easier. But in many cases, the woman left the workforce in order to care for children, and even if she is currently working, she may have fallen behind in both earning power and accumulated assets for retirement, due to years out of the job market. If a portion of one party’s retirement accounts is to be handed over to the other, a qualified domestic relations order (QDRO) will be required. Getting a QDRO is typically neither quick nor inexpensive, so understanding how the costs of obtaining it will be distributed is key.
- If applicable, consider your Social Security claiming strategy. Divorced (and widowed) persons can claim spousal benefits beginning at age 62 (early retirement) as long as the “earning” spouse or ex-spouse has reached full retirement age (FRA), but be aware that doing so will permanently reduce the benefit. Just as with claiming on your own record, waiting until FRA to claim guarantees the maximum spousal benefit.
As with bereavement, once the divorce is finalized and assets have been distributed to both spouses, it will be important to work with your financial advisor to outline a plan for this next phase of life. You should establish a workable budget and ensure that your monthly cash flow from all sources is adequate to sustain it. If you haven’t been working, you should consider whether returning to the workforce will be necessary to both maintain your desired lifestyle and to make adequate preparation for your retirement years.
Whether the transition is due to divorce or bereavement, having a fiduciary, professional financial advisor on your team can greatly ease the uncertainty that women experience during these difficult passages. If you or someone you know is facing such a major life change, we can help.
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Disclosure: JFS is not a law firm and does not provide legal services. These materials are for informational purposes only and should not be construed as legal advice. If you require legal advice, please consult with a licensed attorney.
