A divorce or the death of a spouse exacts an emotional toll. Unfortunately, each can also be a financial toll. Managing the transition from being married to being single means crossing a lot of items off a financial checklist — at exactly the time when you’re least equipped to deal with them.
You can’t do normal daily activities, much less make financial decisions. The good news is that many of those big decisions can wait. In fact, financial advisors caution against embarking on irreversible financial moves until you have some breathing room. Of course, there are immediate tasks to attend to. Following the death of a spouse, there’s a funeral to plan and accounts to retitle. But longer term decisions, such as moving or paying off the mortgage, can wait. Even divorce unfolds over a period of months or years. There’s time to think through your options.
Focus on the immediate
The problem with making rash decisions is that emotion can cloud your judgment. The first step is to make a new budget based on your new income-and-expense projections. You can start by identifying what your sources of income are and where you’re spending your money.
At the end of the divorce process, people are really tired and they may not have the energy to see everything through. Widows and widowers are often surprised to see that their expenses are not cut in half when a spouse dies.
Acting too quickly can also leave you vulnerable to bad advice. We have a client, who went to the bank after her husband died to remove him from the accounts. Once there, she was pitched several financial products including annuities. Truly unbelievable at a time when the widow was not in a position to consider any long term financial decisions. We advise our clients to say something like “That’s an interesting idea. I’m not making any decisions right now, but when I’m ready, my financial advisor and I will certainly discuss this.”
A new financial reality
People who have lost a spouse and those divorcing may suddenly find themselves with less money to work with which is why a new budget is so important. Two households are 25 percent more expensive to maintain than a single household. Divorcing clients can continue spending the same way they did before even though they have less money coming in.
Deciding whether or not to keep the house, especially when there are young children still living at home, is a prime example. People often have an emotional attachment to their home even though they can’t afford it on just one salary. That’s an example where it’s really important to have good advice
Toward the finish line
Even though many financial tasks can wait, financial advisors stress that waiting too long to tackle some of them is detrimental, too. At the end of the divorce process, people are really tired and they may not have the energy to see everything through.
Another client situation comes to mind. In fact, as a result of the scenario, the client came to us for assistance. The person was granted half of her husband’s pension. In order to obtain her share, the wife needed file an application to be credited with half of his pension. In actuality, after the fact, it was apparent that this should have been taken care of by his employer. It had not, and 18 months after the divorce, our client failed to take any action. That is why she approached us. To complicate everything, her ex-husband died suddenly of a heart attack. Since there was no order, the employer didn’t want to give her share to her. We were able to assist her to get it resolved.
We also advice divorcing clients to close out joint accounts and make a fresh financial start. We had another example of a client, three years after her divorce, that applied for a mortgage and was declined. Her ex-husband had declared bankruptcy after their divorce and they still held joint accounts. She wasn’t monitoring her credit report and his credit rating got entangled with hers.
Expect a learning curve
A death or divorce can also mean having to master new financial skills that may not have been part of your duties while married. Though it’s changing, financial advisors say, many couples still hew to traditional gender roles with one taking the lead on finances and the other overseeing other aspects. Many people live another decade or more beyond their partner’s death.
At some point, the surviving partner need to learn to manage their finances on their own. It an be like learning a whole new language. You might as well be learning Italian or French, and when you’re stressed, you’re not going to be able to retain much. Here, too, you can take it slow. Read blogs. Read articles. Build your financial vocabulary one day at a time.
We never know or can control when we may wake up one morning and be suddenly single. What we can do is take whatever action we can to try and mitigate the potential impact on such a change in our personal and financial lives in the eventuality of it happening to us. We advocate that one of these strategies should be engaging the services of a Financial Life Planner where our focus is balancing life events with your financial life. Let us help with yours. Contact Northern River Financial at 1.855.5NRIVER or info@NorthernRiverFinancial.ca. It’s importantly in Keeping Life Current.
