How to Deal With Marital Finances After Death and Divorce
The death of a spouse or a divorce is a traumatic experience that can shake the very foundation of your life. In the midst of dealing with the grief and pain of the loss of a loved one, there are important financial matters that must be taken care of to ensure your financial security moving forward. How prepared and organized you and your spouse are for these events will have a tremendous impact on life after death or divorce. Unfortunately, many people discover quickly that they were not adequately prepared.
The Importance of Recordkeeping Now
Accurate and organized recordkeeping is one of the most important exercises you and your spouse can do to be prepared not just in the event of a death or divorce, but for your financial life together. Hopefully, when you got married, you sat down to discuss your separate (and now joint) financial situations and went through the newlywed financial checklist. Ideally, you disclosed your assets and liabilities, calculated your joint net worth, determined your financial goals, and developed a joint budget to help you get there. If you didn't, do it now. Going through this checklist, even long after the honeymoon phase, will ensure that both of you have a handle on your joint financial situation, which is particularly important in the event of a death or divorce.
Once you've gone through that exercise, it's time to start keeping records of all the important documents. This includes keeping a handle on your bills, balances owed, investments, bank statements, and tax returns. It also means having a copy of any life insurance policies and other important financial assets all in one place including estate plans and wills. All of these documents should be kept together along with names and numbers of important contacts like your financial advisor, insurance agent, and even employer-sponsored retirement plan administrators.
These documents should be considered your financial life folder, and whether it's electronic or in paper form, it should be kept in a secure place and updated annually because, in the event of divorce or death, the last thing you will want to do is be scrambling to find all of these important documents.
In the case of a paper form, keep two copies of the same folder as long as originals are not necessary or available in more than one document. As you might imagine in case of divorce, each one of the parties would need a copy of this financial life folder.
The Importance of Recordkeeping After Death or Divorce
If you and your spouse keep diligent records before death or divorce, this piece should be relatively easy, but in the event that one or both of you were rather unorganized, you will need to try to get a handle on things rather quickly. Whatever information would have been in your financial life folder is of importance now, so the first step is locating that information. You may choose to recruit a family member or hire a financial advisor to help you get through the initial weeks and months after your loss.
As soon as possible, gather up all the documents you can find that are related to your financial affairs and review them:
- In the event of a death, are there life insurance companies that need to be notified?
- Does your spouse's employer need to be notified for use of the company's retirement plan or group insurance plan purposes?
- Do brokerage companies or lenders need to be notified to change the name on your accounts?
- In the event of a divorce, should you cancel joint credit cards and apply for one solely in your name?
- What about bank accounts?
- Do you know what your joint assets and liabilities look like?
In order to get yourself on the path to recovery and financial stability, you'll want to consult a professional about the next steps, but first, you need to educate yourself.
Important Documents to Have
Part of educating yourself about your financial situation after a death or divorce is gathering and reviewing key financial documents. While only you and your spouse will know what documents and statements are applicable to you, here is a helpful list of the most common documents to have:
- Wills or Estate Plans
- Social Security card
- Insurance policies
- Loan and lease documents
- Birth certificates
- Stock certificates
- Brokerage accounts statements
- Bank statements
- Mortgage documents
- Retirement plan documents
- Employment contracts
- Partnership agreements
- Divorce agreements
- Funeral arrangements
- Death certificate
- Tax returns (4 years)
- Safe-deposit box information
What to Do With This Information
One of the most pressing matters is to itemize your bills and your assets, so you have a clear idea of your financial obligations and whether you have the cash or other assets to pay them. If cash is low, you may have to decide which bills you can pay and which you have to delay. Contact your creditors, explaining your situation, and be sure to always pay mortgages, health and property insurance, and utilities first.
Another important issue is your insurance needs. If you have just lost your spouse and you have no dependent children, you may be carrying too much life insurance. If through death or divorce you are now the sole supporter of a child, you may have too little life insurance. You may also want to take out a disability policy on yourself if you don't already have one so that if you were unable to work you'd have money to support yourself and your child. If your spouse was the beneficiary on any of your insurance policies, you'll need to designate a new beneficiary.
Some financial issues can usually wait for a few months, such as reviewing and making changes to your investments. These important decisions should not be made immediately after a death or divorce, if at all possible, and certainly shouldn't be emotionally driven. Once you're ready, you'll want to create a net worth statement (a list of your assets and liabilities) and a budget, showing your expected income and expenses, and then assess your investment strategies. You may want to consult a financial professional (accountant or financial planner) to get started.
You will also find yourself faced with lifestyle decisions such as whether to move to a smaller house or apartment, move to a different town, return to school, or travel. Having a firm grip on your financial affairs will make all of these decisions and the transition to single life a little less painful.