REBUILDING FINANCES WHEN SUDDENLY ON YOUR OWN
Michigan Credit Union League - Your Money Matters
Life is full of unexpected shocks. Those facing a life crisis may suddenly be overwhelmed by a perceived loss of financial security and a sense of panic and misdirection. The day-to-day management of cash flow, investments, insurance and estates is perplexing enough, but suddenly, these issues become even more overwhelming. The emotional nature of a sudden loss must be recognized and managed before effective financial planning strategies can be implemented.
To rebuild, you must secure your personal and financial well-being. Your situation has changes; your economic needs as a widow, widower or single parent will vary greatly from what they were as a married person. Because it can be overwhelming to deal with the financial fallout of such trying, traumatic events while still recovering from your loss, Everybody's Money offers the following ways to help you get your assets in order and establish a firm financial base for your future.
Take your time. Whether you're newly divorced or newly widowed, one principle holds true: Do not make any permanent financial decisions immediately. Don't give into urges to max out the credit card or sell your house to move far away to escape painful memories. Put those urges aside until you've had enough time to learn where you stand financially and to decide what course of action is best.
Set priorities. Some issues do require immediate attention. First, your money must be in a safe place until you decide how to manage it. If you've just received a sizable settlement, you'll probably want to earn interest on the money in a safe, yet liquid account. Be aware that accounts in any one financial institution generally are insured only up to $100,000.
Second, make sure you're covered by medical and/or disability insurance. Now that you're the main bread-winner or on your own, you have to safeguard yourself and your finances by ensuring protection is in place in case of a sudden illness or accident. Call your spouse's employer to find out if you're still covered under the company plan. If not, you may file for a continuation under federal Consolidated Omnibus Budget Reconciliation Act (COBRA) guidelines within 60 days.
Also, you may want to assemble a team of advisers to help you organize your finances. Most likely, you already have a lawyer. Consider consulting an accountant and certified financial planner. They can help to answer your questions about assets, investing, taxes and retirement.
Get organized. For widows and widowers, the financial reckoning is like a paper chase. While divorced individuals have assets tallied and divided during the proceedings, those losing a spouse to death must sort out assets and usually are surprised to find out their net worth. According to the American Association of Retired Persons (AARP) "Final Details: A Guide for Survivors When Death Occurs," you'll need to collect copies of the following documents:
* Death certificate, insurance policies, marriage certificate, birth certificates for dependent children, certificate of discharge from the military, the deceased's will and a complete list of all property.
Rally resources. You'll need these documents to claim the following:
* Insurance policy proceeds. Most likely, the company will pay the policy directly to the named beneficiary in either a lump sum or fixed payments.
* Social Security. You may be eligible for death benefits toward burial expenses and survivor's benefits, depending on your age and if you have any dependent children.
* Employee benefits. Your spouse may have had insurance, a 401(k) plan, vacation or sick pay and other benefits to which you're entitled. Contact the human resources department at your spouse's workplace for a list of benefits.
* Veterans' benefits. Contact Veterans Affairs, formerly the Veterans Administration. You may be eligible for burial expenses, money toward a plot or headstone, as well as disability benefits if your spouse already was receiving such payments.
* Miscellaneous benefits. If your spouse belonged to a credit union, a labor union, the American Legion, a college alumni group or other organizations, you may be eligible for insurance coverage or assistance programs.
Adjust to change. Your new situation brings many changes. Some are nominal, but nevertheless important. You'll have to transfer jointly held assets into your name, including financial accounts and titled property such as the house. You'll need to cancel joint credit cards and open new accounts under your name. Also, review your will and insurance policies - you may want to change beneficiaries.
Your taxes will change as well. Divorced individuals often are surprised to learn how much alimony will increase their tax burden. You may find you have to increase your withholding to cover the extra income from alimony or start making estimated payments that are due quarterly. New widows and widowers may also have to make estimated payments on benefits received. But in addition, they may file federal and state taxes for their spouses of the year of death. They can file jointly for the year of death and for the next two years as a qualifying widow or widower with minor dependent children.
Perhaps the greatest changes you'll face is a change in lifestyle. Whether you were part of a two-income family or supported by your spouse's pension, your main income sources will shift considerably. Face that challenge head-on. Work up a budget that matches your new financial situation.
Recognize your feelings. As you sort through your finances, you may have feelings of guilt and fear. At other times you may feel overwhelmed, unable to make decisions. These are a normal part of the grieving process, but eventually you'll begin to accommodate yourself to the loss and make the changes life requires.