Whether because of divorce or bereavement, many women find themselves in the unexpected, unplanned-for position of needing to assume control of their own finances with little or no preparation or, in some cases, expectation that they would be in such circumstances. Studies indicate that women are far more likely than men to feel stress over money matters, including worries about being prepared for retirement. Add to that the sudden, intense stress created by divorce or the death of a spouse, and it’s no wonder that women struggle with assuming responsibilities that are sometimes completely unfamiliar to them. Not only that, but the percentage of women who leave the finances up to their spouses is apparently greater among wealthier households. According to a study reported by Ohio State University, men were identified as “most knowledgeable about finance” in 90% of the wealthiest families surveyed. In other words, the women who potentially had the greatest chance of having their lifestyles drastically affected by financial decisions are often the least informed about assuming management of their financial affairs.
But it doesn’t have to be this way. There are concrete steps that women making financial decisions can take to regain financial equilibrium, even after the drastic shifts imposed by bereavement or divorce. With the right kind of help and advice, they can chart a path forward with confidence.
What financial steps should a woman take after losing a spouse or receiving a divorce settlement?
1. Get a handle on your monthly budget. With the help of your trusted financial advisor, make a listing (or build a spreadsheet) of all your sources of monthly income: investment accounts, revenue from income property or ongoing business interests, salary (if you’re working), and other sources. Women receiving inheritances may also have access to income from a trust or the terms of a will. Total it all up and then do the same for your monthly obligations: mortgage or rent, vehicle payments, credit cards, food, transportation costs, etc. Get a picture of how your monthly cash flow is working; this will give you a feeling of more control and can help calm anxieties around maintaining your routine.
2. Figure out your debt. Too often, women who are suddenly single learn about debts taken on by a deceased or divorced partner. While many state laws provide some protection to widows for certain types of debt incurred by their deceased partners, how responsibility for debt is divided up in a divorce can be more problematic. Beyond the credit cards, women should also obtain an accounting of obligations like second liens on the home, loans against 401(k)s or other retirement plans, and other non–credit card debt. Because debt will have to be addressed—for deceased spouses, as part of probating the will, and in a divorce, as part of the settlement—it’s best to have accurate knowledge going in, so that you will be able to make informed decisions about how assets will be allocated.
3. Understand Social Security and other sources of income. Widows with children at home may qualify for survivor benefits from Social Security, depending on their deceased husband’s earnings record. Children still at home may qualify for survivor benefits until they reach age 18. Older widows (from age 62 up) may be eligible to file for monthly income benefits based on their deceased spouse’s record. If the deceased spouse had a pension plan at work, they may also qualify for additional benefits. If the husband had a 401(k) plan at work, they may be the beneficiary of the plan and entitled to proceeds. Widows should also find out about all the deceased spouse’s IRAs and, of course, life insurance, including additional accidental death benefits, depending on the circumstances of his passing. And speaking of retirement accounts, divorcing women should find out about any retirement or pension plans their ex-husbands may have had, since these are subject to division between the parties as part of a divorce settlement. Also, older divorcées may be able to file for spousal Social Security benefits, based on their ex-husband’s earnings record.
How do I find a financial advisor I can trust after a major life change?
As mentioned above, women in financial transition can benefit greatly by having a trusted financial advisor in their corner. A fiduciary financial planner or wealth advisor can provide tremendous assistance with getting a handle on near-term financial needs, assessing available resources, getting organized, and creating a long-term financial plan designed around the client’s specific situation. For women who are rebuilding their lives through financial transition, choosing the person who will assist them is a vital decision.
But how can you tell if the person you are considering is truly a professional financial advisor, or just someone who wants to sell you various products? What is the difference between an advisor who will do what is in your best interest and an advisor who will merely do what is appropriate, but not necessarily optimal for your situation?
Here are some questions you can use to evaluate the type of service and expertise you can expect from someone you are evaluating. Asking these questions and carefully listening to the answers can give you important insights about the type of advice and counsel you can expect to receive.
- What is your educational background and what professional qualifications do you have? Has this person undergone specialized training beyond what is required for licensing to sell securities? What organization provided the training? What professional certifications does the individual possess?
- How are you compensated? Financial advisors and representatives get paid in various ways. Some are paid from commissions on the products they sell; others charge a fee for their services based on the amount of assets they are managing for you. Some charge hourly rates, and some are paid fees by the companies whose products they represent. What you want is an advisor who will make recommendations based on what is in your best interest, not based on how much they get paid to sell a particular product or service.
- Are you required to do what is in my best interest, or only what is suitable for me? This question may be the most important of all. Advisors who adhere to the fiduciary standard must always give advice and recommendations that place the client’s best interest ahead of everything else. Advisors who are only required to meet the “suitability” standard may make various recommendations, as long as they are deemed “suitable” to the client’s situation. There is no higher standard for financial advice than the fiduciary standard.
As a fiduciary financial advisor and asset manager, Optima Asset Management is committed to providing advice, guidance, and recommendations that keep the client’s best interests foremost at all times. For women making the complex transition toward sole responsibility for their financial decisions, we can provide evidence-based counsel built on a collaborative process that proceeds from a thorough understanding of your needs, resources, goals, and values. Visit our website to learn more about how we build trusted partnerships that can lead to greater peace of mind.
