The transition period after a death or divorce is a time when weighty financial decisions about the rest of your life, and possibly your children’s lives, will have to be considered, and then carried out.
It can be challenging during this transition to make important life decisions in the midst of the emotions you are experiencing. Many financial experts counsel their clients to wait to figure out how to manage the longer-term financial transition. But as difficult as it might be, you'll need to attend to some time-sensitive matters right away.
Knowing this will be a stressful time for you, focus on addressing urgent financial matters that require immediate attention. Then, allow yourself the necessary time to heal before diving into less pressing financial decisions that can wait.
Prioritizing Your Decision Making
We all have a unique set of circumstances, and each of us will have a different “to-do” list, but here are some important financial matters to consider if you find yourself suddenly single. Take care of these necessities first.
Update accounts. As soon as a status change occurs due to a death or divorce, contact your bank, brokerage, or other financial institutions to change jointly-held accounts into your name. For widows, secure several copies of your spouse’s death certificate in order to update accounts.
For divorcees, provide necessary signatures and guarantees to financial institutions to change account ownership.
Collect benefits on retirement savings. Retirement accounts such as 401(k)s, 403(b)s, and Roth and Traditional IRAs will pass to the surviving spouse if that individual is named as the beneficiary. IRAs typically pass along to the surviving spouse too, even if a beneficiary is not named. It’s best to speak with a tax advisor to understand the tax implications of inherited IRAs before assets are moved.
Typically, divorcees have a legal arrangement as part of the divorce settlement that acknowledges the recipient’s right to receive a portion of the spouse’s retirement account balance. In a court-approved transaction, IRAs are divided through a one-time distribution from one spouse’s account to the other’s.
Check your life insurance policy. If your spouse has life insurance through an agent or through their workplace, the surviving spouse should begin to receive proceeds tax free within one-to-six weeks after the notification is received.
Divorcees should consider updating the beneficiary on their life insurance policy, or potentially purchasing or changing coverage for themselves and/or their children.
Update your health insurance policy. If you received health insurance through your spouse, you may continue coverage by paying monthly premiums through COBRA. (COBRA is generally available at a cost of about 102% of the policy, and is usually available for up to 36 months.)
Consider other health insurance options through an employer or an individual plan that may be more cost effective.
Creating a Long-Term Financial Plan
Once you have addressed the most pressing matters listed above, take the necessary time you need to consider your longer-term plan to help protect your financial well-being.
Build a budget. Create an itemized list of your essential day-to-day expenses (bills, groceries, mortgage), then list any outstanding debt you might carry. Once your essential expenses and debt obligations are met, you'll have a clearer picture on what you can spend on discretionary items such as entertainment, dining, sporting events and travel.
Once you know the financial requirements in order to maintain your lifestyle, determine whether your income and savings will cover them. If not, consider ways to streamline your spending or reduce loan payments. You may also consider savings from downsizing your home, if it makes sense for you to do so.
Explore Social Security benefits. If you’ve become widowed, you may be eligible for a one-time death benefit from Social Security and 50% of your spouse’s Social Security if it’s higher than yours. Benefits may be taken at the full retirement age, or reduced benefits may be received earlier.
Divorced spouses may be eligible to receive Social Security benefits if they were married longer than 10 years and are at least 62 years old. Learn more about maximizing Social Security benefits for singles.
Protect yourself for the future. Consider long-term care insurance to defray the high cost of a nursing home stay or at-home assisted living that could potentially drain your income. If you’re still employed, disability insurance can help cover the impact of a loss in income.
Despite the emotional strain you may experience due to the loss of a spouse or divorce, you can care for your financial well-being by considering your financial situation and needs as a newly single person.
Speak with a Financial Consultant
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