None of us can anticipate all of our expenses. Every stage of life brings a whole new set of unanticipated needs. Even after identifying every outflow you think you might have, there will still be significant unexpected costs. For this reason, we recommend constantly budgeting for financial surprises in an Unknown Budget.
That being said, there are several large expenses which can be anticipated and prepared for even though they are irregular and the timing of them unpredictable.
In 2015, the PEW Charitable Trust analyzed the frequency and impact of household financial shocks. Among households surveyed, only 4% stated “Someone in the household divorced, separated, or was widowed from a spouse or partner” during the past 12 months.
Although this is the least common financial shock studied, it is one of the most difficult because at its core it is a problem money cannot solve.
People may think financial planning is unromantic, but romance is only a part of day-to-day marriage. Marriage is more than gazing lovingly into each other’s eyes. Marriage is as much a business merger as any corporate contract you can sign.
Financial security and planning produces an atmosphere of shared goals, respect, and communication within which romance can flourish. If a couple cannot share details about their finances, it doesn’t bode well for their relationship. Engaging a fee-only financial planner may help to avoid divorce entirely.
Financial difficulties are usually a factor in most divorces, and many financial surprises may be revealed during a divorce proceeding. You may have assumed that assets held by your spouse were joint assets only to find that you live in a state that respects individual rights for assets held separately before you married. Your spouse may have kept his or her assets separate while also squandering your joint assets. You may find that you were unaware of the size of your credit card debt. You may find that bankruptcy and divorce happen in the same year. Spouses who have secrets in one area of their lives often have secrets in other areas of their lives.
Divorce court proceedings are a terrible ordeal and rarely produce the just and equitable outcome they seek.
The cost of legal representation during the proceedings can be large, and you may not have independent resources with which to pay the expense. It is normal for divorce proceedings to take a year or more. Some spouses have to borrow money from family members in order to pay their legal fees while the ownership of assets is contested.
You may have become accustomed to a larger lifestyle than you will be able to afford as a single person. The real median personal income of workers in the United States was $31,099 per year in the latest 2016 statistics. Downscaling a household income of $120,000 to an individual income of $31,000 is very difficult. You may find healthcare insurance unaffordable. You may receive much less child support and alimony than you want, and neither may last as long as you expected.
You may not be able to keep the home you are living in. It may be contested, sold, or living there may involve an unsustainable lifestyle. You may be forced to get a job simply to have a minimal income level. You may not have skills that are still relevant in today’s economy.
Knowing that these are all a possibility can help set your expectations as you face the prospect of divorce. It may also help you set a much lower standard of living. While I have provided expert witness testimony for divorce cases and tried to help people avoid behaviors which cause divorce, I know that there are many things to worry about in a divorce of which I am not knowledgeable. For additional information, Karen Covy, divorce adviser, attorney, and coach, has a list of over 50 pieces of divorce advice that you might find helpful.
Separation may be worse than divorce or becoming a widow. Establishing your own finances and financial independence is important. In separation you may have all the problems of divorce but none of the legal recourse. And there may be no end in sight if you do not initiate legal proceedings.
Becoming a Widow or Widower
The average age of widowhood is age 59, but this is because the possible ages of widowhood is spread across an entire lifetime of marriage. The average length of widowhood is between 20 and 30 years.
Becoming a widow has both similarities and additional challenges when compared with divorce or separation. Widowhood is often accompanied by depression and loneliness. Psychologically, losing a long-term partner can also cause anxiety or feelings of guilt. These often result in physical illness and result in higher than normal mortality rates during the first six months of bereavement. This increased risk of death is more common if the surviving spouse is the husband. Making it through the first year emotionally is critical. Acquiring the help of friends and family is important. Friendship, community, companionship, and emotional support are the most important factors for recovery.
In retirement, a person’s social network is often already contracted. After losing a spouse, your social network can shrink even smaller. Depression is nearly always accompanied by loneliness. Without loneliness, depression can often be eliminated or greatly reduced. Social isolation can lead to depression, and severe loneliness can lead to a feeling of hopelessness. Finding community is never easy, even at the best of times. Whatever keeps you connecting with other people should be cherished and protected.
Meanwhile, grief and lack of experience can make widows vulnerable to financial sales. People prey on the surviving spouse’s clouded judgement. They are vulnerable to anyone who appears to care for them. Because the bias of commission-based incentives can be hidden, even the salesperson may sincerely believe they are only reaching out in order to try to help someone in need. It is even more important to work with a fee-only fiduciary if you choose to seek financial help.
The anxiety makes sales pitches for insurance products that tout guaranteed returns and avoid the risks of the stock market enticing, even though they are unwise.
Widowhood is also often accompanied by a number of seemingly necessary financial tasks. New accounts often need to be opened and assets transferred. Paperwork needs to be filled out. And anytime money is in motion is a time when financial products can be sold.
Meanwhile much advice suggests to avoid making any major changes during the first six months or a year after losing your spouse. Distinguishing between wise financial decisions and unwanted sales pitches can be difficult, especially if the surviving spouse did not normally deal with the finances.
There are many helpful books on the challenges of becoming a widow. One we recommend is the “Survivor’s Assistance Handbook” by Mark Colgan, a practical guide to many of the issues which must be faced.
Our advice to widows is to find a fee-only financial planner who is a member of the National Association of Personal Financial Advisors (NAPFA). NAPFA-Registered financial planners are all fee-only, credentialed, and offer comprehensive financial planning.
How to Prepare
You can fund each spouse’s retirement accounts to the full extent allowed, even if only one is working.
You can make sure that your beneficiary designations are correct on all of your assets.
You can anticipate the possibility that one partner may live well into their 90s. Financial planning can help set safe withdrawal rates so that the maximum money can be spent without the risk of the surviving spouse running out of money.
You can anticipate the possibility that you will be required to run your family finances by yourself. In most marriages, responsibilities are delegated to one partner and ignored by the other. Involving both partners in the process can build both confidence and backup should one partner need to take over and be responsible.
It may be helpful to think of marital responsibilities as you would a partnership. Healthy business partnerships have regular board meetings where finances are discussed and financial reports reviewed. Monthly budget meetings can be a time to dream and plan together, building shared values and vision. It is unacceptable for one spouse to hide financial issues from the other spouse.
You can also select a financial advisor who would serve as a backup if something happened such that you could not handle your own finances. This provides an opportunity for the more knowledgeable partner to help pick their backup in case of an emergency. That way the surviving spouse will know at least one place they can turn for advice.
We have met with many families that were handling their own finances more than adequately, but the spouse with the responsibility wanted to vet a financial advisor for the time when he or she was no longer able to do that task. For some, we started partnering with them now. For others, our name and contact information is part of their estate plan in the event that help is needed. We, or any other NAPFA member, consider it an honor to be selected for that contingency.
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