It is sometimes said that while June is wedding season, January is divorce season. Perhaps it is too much togetherness during the holidays that might be the final straw, but the holiday spirit seems to have lost its magic by the time January rolls around. And whereas divorce has unfortunately become quite commonplace, the challenges that come with it remain difficult to deal with on many levels, particularly from a financial standpoint.
While both men and women are significantly impacted by a divorce, women’s finances seem to be taking an extraordinary hit. In fact, according to the Allianz Life Women, Money and Power study, 64 percent of divorced female respondents said their divorce created a financial crisis for them and nearly an equal amount (59 percent) noted that losing their spouse or significant other due to divorce was a real “wake-up call” for them financially.
While there can certainly be signs that a divorce is imminent, no one wants to make an assumption that it will be the ultimate outcome of their marriage or partnership. However, there are certain tips for married or partnered women to consider to prepare for a possibility of being on their own.
[See: 12 Steps to Protect Your Money in Divorce.]
Get more involved. It might be easy to just have one person handle all finances, but that could be a mistake. Both partners should be aware of the overall financial picture. For example, if they are not already involved, women can take on a more defined role in the day-to-day money management and budgeting. Taking the time to assess all accounts and their respective values is important. Also, getting a better handle on all assets as well as all liabilities and making sure that credit reports under one’s name are accurate is equally important. Last, make sure the beneficiaries identified on all life insurance policies, annuities, individual retirement accounts and other accounts are correct.
Next, think about what a new financial reality might look like.
For example, consider the potential impact on health care costs. For those covered under a spouse’s or significant other’s health plan, having to switch coverage (for one person, and in some cases, for children as well) can be extremely expensive and create an entirely different budgeting situation. Also, tax situations can change. If child support is an issue, remember that it is not taxable to the recipient and not tax deductible to the payor. However, with alimony the tax consequences might be different. The alimony is taxable income to the recipient and tax deductible for the payor, but under the new tax reform, that is changing for divorce or separation agreements signed after 2018. Consult with a tax professional and attorney to learn more about these aspects of divorce.
Last, for those nearing or already in retirement, becoming familiar with finances is even more critical. The financial picture is that much more complicated when estate planning , Social Security and other retirement financial matters come into play at this stage in life.
Join meetings with the financial advisor. For those working with a financial advisor, both partners should be involved in meetings, the planning process, and decision making. This is an easy area to make an assumption that only one person needs to participate, but that could not be further than the truth. A good financial advisor will almost always have a preference to work with both partners.
[See: 11 Great Investing Tips for Women.]
As part of the financial planning process, ask questions and voice concerns. Financial planning professionals are being paid to provide guidance that is in the best interest of the couple, not just one person.
Pass it along to the next generation. Sharing knowledge with the next generation is something many of us feel compelled to do and in the case of today’s women it ranks as a high priority. In fact, as part of the aforementioned Women, Money and Power study, when asked what advice they should pass on to their daughters and granddaughters, more than 80 percent of divorced (and widowed) respondents said, “Don’t depend on others for your financial security.” Similarly, more than three-quarters of the same respondents also advocated planning early and for the next generation to have a financial plan.
Taking the time to share knowledge and teaching younger family members about finances helps instill positive lifelong habits for both boys and girls. It really is never too early to start learning about money and building financial acumen. Teach kids to research financial topics and allow them to get more practice by taking on increased responsibility at home. Instilling the importance of financial planning with the next generation is an important life lesson that they will use for years to come.
No one goes into marriage thinking about the possibility that the partnership might end in divorce. However, like any other unexpected events, it is always wise to consider and prepare for all possibilities. Divorce can certainly have a huge impact on one’s finances and lifestyle and taking a few easy steps to prepare is a worthwhile endeavor that can help create a better future.
Disclosures: This article is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give fiduciary, tax or legal advice. Clients are encouraged to consult their tax advisor or attorney.
[See: 7 of the Best Stocks to Buy for 2018.]
The Allianz Life Women, Money, and Power Study was commissioned by Allianz Life Insurance Company of North America in October 2016 with some questions resurveyed from the 2013 Allianz Women, Money, and Power Study. The survey was completed online by 1,416 women, ages 25-75 with household income of $30,000 a year or higher.
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How Divorce Affects Investments originally appeared on usnews.com
