Here in New York, despite some new COVID-19 variant fears, life is starting to return to normal.
Restaurants have opened, people have shopped for the holidays, and Broadway’s lights are re-flickering. In one of the returning shows — “Little Shop of Horrors” — a favorite song of mine “Suddenly Seymour” is highlighted, and it made me think of an alliterative situation many will face in the coming year: Suddenly single.
Aside from being a huge life change, when women find themselves suddenly single through divorce or a death, life can seem overwhelming from a planning and financial standpoint. It’s often a tougher burden for women who may not have been intimately involved in their family’s finances, actively participated in a family business, or even knew the various professionals who helped manage and protect wealth. As we look ahead to the new year, here are some key considerations that women in transition should prioritize:
Getting a handle on all assets and cash flows
Wealth is usually accompanied by a complex balance sheet. The first step after becoming single unexpectedly is to get organized to get a clear picture of your finances. You might not be aware of all the assets/accounts or cash flow needs that supported your lifestyle if you have been more passive on the financial/investment front.
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If you are receiving a lump sum settlement/alimony or inheritance as your only major cash inflow, you need a thoughtful long-term plan in place to ensure that the settlement proceeds or inheritance funds will sustain your lifestyle. A financial adviser can also assist in running cash-flow projections, stress testing a portfolio, and modeling projected rates of returns.
During times of transition, particularly involving a divorce or death, it’s critical to review all your estate planning documents and beneficiary designations to ensure they reflect your current wishes. Powers of attorney and healthcare directives should also be updated so the right individuals are poised to make important financial and healthcare decisions for you.
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Revisiting insurance coverage
When major life changes happen, it is important to review your insurance policies – both life and property & casualty/umbrella — to make sure you are adequately covered, that the insurance is titled in the right names, and that the premiums continue to be paid.
Hiring experts to assist with a review of complex assets will help you acquire a complete understanding of your financial picture.
While the above list is an important one filled with “Dos” when women find themselves suddenly single due to a divorce, there are also many “Don’t” traps to remember.
Not having a prenuptial agreement
Prenuptial agreements can give both parties peace of mind and ensure a marriage begins with open communication and disclosure. In the absence of a prenup, state law will govern asset division.
Being uninvolved in financial matters
A spouse uninvolved in financial matters can be particularly vulnerable when it comes to dividing assets or understanding cash flow needs.
Falling into income tax traps
Division of property by value alone can be misleading if some property has a high basis and some has a low basis—the value might be the same but appreciated property can have built in gains that might significantly impact the true value.
Getting the home…without accounting for the maintenance
If you are pursuing your family home in the divorce settlement, you should carefully consider the expense of maintaining the house and property.
Failing to factor in additional expenses for children
Children often have expensive hobbies, tutors, summer camps and private school tuition. Those expenses must be considered. No matter how wealthy you are, it is important to review educational funding options and planning techniques to pay for education most efficiently—and to have those obligations clearly spelled out in a divorce decree or settlement.
For business owners—not having a buy-sell agreement
A buy-sell agreement is a contract that establishes when, to whom, and at what price an owner, partner or shareholder can sell or transfer his or her interest in a business. Business owners typically want to ensure an ex-spouse does not become a partner in the business.
Letting vengeance fuel divorce proceedings…and attorney fees
Even though it is easier said than done, you should try to manage your emotions during divorce negotiations to amicably dissolve the marriage and minimize fees and stress. Playing out bitter feelings for retribution can lead to substantial increased costs and anxiety levels — including attorney fees.
Additional financial challenges
If you have been out of the workforce for an extended time caring for your children, it may be difficult to re-enter the workforce after a divorce. Being in this position can make you dependent on an ex-spouse for financial support and should be factored into settlement negotiations.
While a divorce brings unique stresses for women, the sadness of losing a spouse through death could also be compounded unless other considerations are carefully weighed.
Being led by friends and family members
During such an emotionally difficult time in your life, the support of family members and friends can be invaluable. Despite being well-intentioned, however, friends and family members are often not equipped to deal with the complex decisions that confront a widow.
Making decisions too quickly
There are postmortem planning techniques that can potentially dramatically reduce estate and income taxes and facilitate the tax-efficient transfer of wealth to your heirs, but it will not generally be possible to leverage those techniques after assets have been distributed, sold or retitled.
Not having all the financial information on which to base your decisions
It is important to understand what your living expenses will be in this new stage of life to make sure you can sustain your current lifestyle — including if you are looking into selling the marital home, purchasing another property in a warmer climate, or want to relocate to be closer to your children.
If you receive a large sum of money from your deceased spouse’s life insurance policy, a financial adviser can provide holistic advice regarding how to tax-plan efficiently with the funds for yourself and your heirs, and how to invest the funds based on your overall financial needs.
Not having the right executor and trustee
A corporate trustee has professional knowledge and expertise with the legal, tax and administrative complexities of administering estates and trusts, and has the time, resources and financial wherewithal to address the needs of the beneficiaries and protect their interests. A corporate executor or trustee will also act impartially.
The bottom line for those suddenly single – It’s all about the team.
Sharon L. Klein is president of Family Wealth, Eastern Region, for Wilmington Trust, N.A.