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. Making important life decisions during emotional times can be strenuous but necessary.
Recognizing this will be a stressful time for you will help. We are human, after all. 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.
Taxes are on the list of prioritizations. Unless you have minor children, this is the last time you will be filing a joint tax return. If your income remains consistent after your spouse passed away, you will likely experience “margin compression,” where your tax rate increases as a single filer with similar income. This phenomenon has impacted more families than ever because of defined contribution plans rather than pensions.
You will need to update all your accounts regarding titling and beneficiary designations. Contact your bank, brokerage, or other financial institutions where jointly held funds are held and change the ownership of these accounts. You should also follow up on accounts that may not be in your name but may include you as a beneficiary
Assuming you have current income or liquid assets and understand the monthly obligations, you can take a moment to breathe. Your long-term financial plan needs to consider a budget based on your standard of living moving forward. The surviving spouse will most likely have the same fixed expenses (expenses that continue with life), while the social expenses (discretionary and fun items) may adjust. You will also want to explore your social security benefits. 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.
One thing that will make this process easier is to be informed while both spouses are still alive. One spouse may be doing the financial planning, but everyone should be aware of the plan. Educate yourself about money management and investing. You should know how your family's money is working. Be involved as much as you can.
A woman came into our office one day and was very distraught. Her husband had just passed away unexpectedly. He had taken care of all of the money and planning for their family. She hadn't so much as written a check in the time that they were together. She was so worried if she had enough to live. Fortunately, they had saved and planned. An earlier conversation would have removed that needless worry.
Losing a spouse is so emotional and heartbreaking. Cascading clarity over financial issues while everyone is healthy and alert can reduce fear and worry at the worst of times. Have the tough conversations in your relationship, so everyone knows the plan if one of you were to be suddenly single.
Joseph A. Clark is a Certified Financial Planner and Managing Partner of The Financial Enhancement Group, and an SEC Registered Investment Advisor. This article was co-authored with Jamie Burton. Contact Joe at yourlifeafterwork.com or 800-928-4001. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.