By Sean M. Dowling
The death or divorce of a spouse in never easy, and it can wreak havoc on your financial plans. If that spouse was the primary earner, then that income ends, or you may find you need to sell assets in order to fulfill financial obligations. Regardless of the circumstances, your situation has changed. If you had not previously been closely involved in the decision making process about your finances, having to do so now can seem overwhelming.
In our community, women are increasingly active in their families’ financial planning. Unfortunately, death and divorce affect many. Statistically women do outlive their husbands, and divorce after decades of marriage is not uncommon. We all know someone this has happened to. These life-changing events can catch us off guard, and where there were previously two people making a decision, now there is just one.
The key is not to make hasty decisions. This new situation adds a new level of complexity to your financial planning, but one—with the right approach—you can easily manage. Here are five steps that you can take to help you through the transition.
Talk to people you trust. Find a friend or trusted advisor who is financially sophisticated and use them as a sounding board. You may even want that person to go with you when you first meet with prospective financial advisors to help you in the selection process. They can help you ask the right questions and be objective in their opinions.
Select the right team for you. You will need the assistance of several experts, including an attorney, tax professional, financial planner and investment adviser. These different disciplines do not exist in a vacuum. They all have an effect on one another and when properly coordinated will result in successful outcomes for you.
Finding these professional can seem daunting. You will either need to hire several different firms or find one that has the expertise and breadth of services to offer them all. Talk to people who have been in a similar situation, ask them who they use. Ask for recommendations. It can be a bit like finding a new doctor. At the end of the day you want professionals with the right mix of experience, personality and approach. They should also have a clean professional history and operate as a fiduciary.
Always be organized. You are in charge of your financial house now, and it has many components. You will need to have key documents readily available, including: recent brokerage and bank statements, tax returns, insurance policies, loan documents and Social Security statements. You may be collecting this information from several difference locations. The new firm you work with should be able to help facilitate and advise as to what is missing.
This is the time in your transition when you should look closely at the documents to see what needs to be updated, such as beneficiaries. You should look to protect your assets and your heirs. Updating your will and any trust agreements and life insurance policies, can often be thought of as something to do down the road. Updating them now limits any downside exposure.
As you put your financial house in order, create an inventory of your bank and brokerage accounts, insurance policies (health and life), and all of your recurring bills. Store the information with your financial advisor and let your loved ones know where that information can be found.
Look at what you have and what you need. The first step in financial planning is to be clear about the objectives. You will need to reconcile your income and savings with your spending. Many have a pretty good idea of their monthly spend, but if not, your financial planner can help you to determine your monthly budget. It’s important to know where you’re going so that you can take the right actions along the way to get there.
Be Proactive. You do not want to make hurried decisions, but you also do not want to delay planning for your financial future. The transition following a death or divorce is emotional and difficult. You do not want to make major financial decisions immediately, unless there is a compelling reason. You should work with your trusted team of professionals to create a long term plan that incorporates any major changes at the most optimal time for tax and financial purposes. You may not have all the answers immediately, and that is to be expected; however, beginning to put your financial house in order will give you stability and help ease the transition.
Sean M. Dowling, CFP, EA is the President of the Dowling Group a prominent financial advisory firm based in Greenwich, Connecticut. They are experts in assisting clients with financial planning, income tax preparation, investment management, risk management, and family office services.
