Caring for Your Finances When You’re Suddenly Single

The transition period after a divorce or the death of a spouse 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 to make important life decisions in the midst of the emotions you’re experiencing. Many financial experts counsel their clients to wait a while before figuring 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 unique 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.

1. Update accounts. As soon as your marital status changes due to a death or divorce, contact bank, brokerage, or other financial institutions where jointly-held accounts are held and change to your name. For widows/widowers, 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. You should also follow up on accounts that may not be in your name, but may include you as a beneficiary. 
2. 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, even if a beneficiary is not named, but the transfer of assets could be delayed and costly due to a probate. 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.
3. Check your life insurance policy. If your spouse had life insurance through an agent or through an employer, you as the surviving spouse should begin to receive tax-free proceeds 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.
4. 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 plans 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, take the time you need to consider your longer-term plans to help protect your financial well-being.

1. 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 of 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. 
2. 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 benefit 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. 
3. Protect yourself for the future. Consider long-term care insurance to defray the high costs of a nursing home stay or at-home assisted living that could potentially drain your income. If you’re employed, disability insurance can help cover the impact of a loss in income. Despite the emotional strain you may experience from a divorce or the death of a spouse, you can take steps to ensure your financial well-being as a newly single person.

Changing to a legally single status can be a complicated financial endeavor, but it’s important to take all the necessary steps to ensure your paperwork and accounts are in order. As you protect yourself through updating your policies and accounts, also remember you can take the opportunity to ensure beneficiaries are listed correctly so that you can also protect your loved ones. TD Ameritrade account holders can add or adjust their beneficiary designations online in just a few simple steps.