Imagine there’s a loud knock at your front door. You open it, and staring back at you is a pair of grim-faced police officers. They inform you that your young, healthy husband of only 14 months was just killed unexpectedly in a motorcycle accident. Your whole world comes crashing down.
This happened to a client of Stacy D. Phillips, founder and managing principal of Phillips Lerner, a family law practice in Los Angeles, and author of “Divorce: It’s All About the Control.” The couple had the forethought to have their legal and financial planning documents in order, which made the unfortunate experience easier on the widow. But Phillips has seen many women face financial problems because they didn’t plan for the possibility of losing their spouse.
Are you prepared for the worst?
A study released in November 2014 by BMO Private Bank of Chicago found that the majority of women are confident they could manage their household’s finances if their spouse dies or divorces them. In the study, nearly three out of four women said they thought they would be able to maintain their current standard of living, and more than four out of five believed they would be able to manage their household finances effectively on their own.
However, the study found that women are less prepared than they think: 58% have no will, 68% lack a power of attorney and 62% have no living will. Here are ways you can plan ahead and prepare yourself for the worst-case scenario.
Get involved early on
Planning for death is understandably one of the last things newlyweds want to do. But Marcella A. Harkness, a certified financial planner with Capital Growth, Inc. in San Diego, California believes the beginning of the marriage, when things are going smoothly, is the best time for a woman to become involved in all household financial matters.
“Often, a sudden death or a dissolution of the marriage catches women off guard because they weren’t involved in finances at the onset,” she says. “If women play a more active role at the beginning, it is less likely they will find themselves completely in the dark.”
Not sure how to bring up the sensitive topic with your mate? Harkness suggests finding an article about the subject and asking your spouse what they think, or mention a friend who has lost a spouse and discuss how you could prepare for a similar situation.
Coordinate with your spouse
Both spouses should know where important documents are to pay bills and operate your household if one passes away, Phillips says. If you haven’t been a part of financial discussions so far, you should ask about important financial accounts and documents, such as life insurance policies, stock certificates, and bank accounts. Phillips also recommends that women view monthly statements and participate in meetings with wealth advisors, accountants or estate planning lawyers.
If you meet resistance from your partner, Phillips suggests saying, “If something were to happen to you, I don’t know where certain things are.” She also advises clients to list where everything is and make sure both spouses know where these notes are kept.
It’s wise for couples, especially those who are older, to meet with both an estate planning attorney and a financial planner or wealth advisor to be thoroughly prepared. Phillips says these types of professionals “do different pieces of the same puzzle.”
A financial planner or wealth advisor can advise you on how to invest and budget to ensure a solid financial outlook. A lawyer will help you set up important forms, such as a health care power of attorney, which indicates who is in charge of your decisions if one of you is physically or cognitively incapacitated.
Harkness and Phillips also emphasize the importance of having a basic will in place, which an attorney can create for you and your husband. Without one, Harkness says, “the legal hurdles a grieving spouse will have to overcome make the sudden death of a spouse markedly worse.”
If your husband dies without a will, not only does the court system get involved, but state law determines how his assets are distributed. Having a will ensures you and any children or relatives will be financially protected and expedites the process. When you’re grieving, the last thing you’ll want to worry about is sorting out inheritances. Make sure that both of your wills are updated with any life changes, such as the birth of your children.
Cover all of your bases
Regularly update beneficiary information on all accounts, such as IRAs, 401ks and life insurance policies to ensure that the rightful beneficiaries are indicated, Harkness recommends. This is especially important if your spouse was previously married. Review your beneficiaries whenever there is a change of employment or insurance companies.
Many experts also recommend purchasing life insurance, which can be inexpensive in your younger years and helps ensure you and your children are financially secure following the death of your spouse. “Make an estimate of expenses that would need to be covered in the event of death and purchase enough insurance to cover those expenses for several years,” Harkness says. She recommends taking into account college expenses for your kids.
It’s unpleasant having to imagine losing your spouse. But planning ahead and having these financial conversations with your partner will not only empower you, but also leave you with far fewer things to worry about if the unimaginable happens.
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