When someone becomes single again due to a divorce or the death of a spouse there are many things they may need to change depending on their personal and financial situation.
Will, Trust and Beneficiaries
From a legal perspective, it may be necessary to change the will or trust to reflect who the assets will be distributed to upon your death in the event that your spouse was previously listed as a beneficiary. Beneficiary designations on any life insurance policies, bank and financial accounts, retirement accounts and IRAs will also need to be reviewed and updated. Typically, a spouse is named as the first beneficiary. If one dies after a divorce and has a retirement plan through work, cases have held that the surviving former spouse may be entitled to the retirement plan, regardless of what the judgment of divorce states. Generally, one does not want to provide a windfall to a former spouse. Beneficiaries should be immediately revised for this reason.
The divorcee/widow will also want to look at their financial power of attorney documents and medical directive forms to determine if these need to be changed. Often a spouse is listed as the person who has power of attorney for financial or medical decisions in the event their spouse became incapacitated. Likewise, you want to make sure to name someone else to have access to your medical records by revising your HIPPA form and medical directives.
If a person has a trust, there are additional factors to consider. Under a trust, the former spouse or deceased spouse may be named as one’s successor trustee. Therefore, it will also be necessary to review and possibly update who the successor trustee should be. The successor trustee is responsible to follow the terms of the trust, upon one’s incapacity or after death. If a former spouse is named as a recipient of your assets after death, the trust may need to be revised, removing the former spouse and distributing the assets to other beneficiaries.
In addition, any property owned, such as a home or car, or even any joint credit cards or bank accounts should reflect the new “single” situation. Therefore, the deceased spouse or the former spouse will need to be removed as an owner or have the ability to incur debt or obligate you legally.
Tax Withholdings and Filing Status
For income tax purposes, if you are still working, you may need to adjust your tax withholdings because you now won’t have the income from your spouse and will also be filing single rather than jointly in the future.
In the event a divorce is not finalized by the end of the year, it may be necessary to investigate if you should file as ‘married filing jointly’ or ‘married filing separately’. Filing status is determined as of December 31. You should figure taxes according to both the married filing jointly status and the married filing separately status. The most advantageous approach from a tax standpoint as well as potentially from a liability standpoint of your soon to be former spouse will need to be determined.
Upon a death of a spouse, one’s tax filing status will be affected. You can usually file a joint return for the year your spouse died.
If you meet certain requirements (e.g., you support a dependent child for whom you can claim a tax exemption, and you have not remarried), you can file as a qualifying widow(er) in each of the two years following the year of your spouse’s death. This status allows you to use the married filing jointly tax rates.
If you are ineligible to file jointly or as a qualifying widow(er), the head of household filing status may be possible. To qualify, you must provide support for a child or relative and meet several conditions.
After a life changing event such as a death or divorce, one will need to review their financial situation. This will include social security, investment goals and objectives, and how to navigate the financial landscape, specifically if one has not previously been involved in financial matters.
After a death of a spouse, the survivor’s social security and pension benefits may be impacted. For social security benefits, if certain criteria are satisfied and one does not become remarried, then the surviving spouse may receive a benefit based on the deceased spouse’s earnings.
In the event of a divorce (and you do not become remarried), one may be eligible to receive the former spouse’s social security benefits when the former spouse dies.
Upon a death or divorce, (and subsequent death of the former spouse), social security will need to be reviewed to determine the largest benefit one is entitled to. A consultation with a professional to advise you on the best course of action is recommended as it is a complex area.
In order to have a better handle of one’s financial condition, it is recommended one review their sources of income, such as wages, alimony, child support, social security and pension benefits. In addition, one should have a strong knowledge of what their expense are. This would include mortgage payments, insurance, taxes, utilities, medical care, automobile, educational, clothing, travel, and food expenses.
It is important to know what your goals and objectives are about your assets and what you are trying to achieve. If you have not thought about these items, it is important to determine what they will be. For example, one may be saving for retirement, college planning, travel and adventures or a new home.
We recommend you educate yourself about investing. You do not want to be taken advantage of by unscrupulous salespeople who are not looking out for your best interests, only their own interests. If you do not feel confident or lack the time to educate yourself, then a professional advisor may be the best solution. Reviewing one’s financial matters and estate planning on a regular basis is something we strongly encourage.
Regardless of your marital situation, there are times when you may need to change your estate planning documents to reflect changes in your situation, such as the birth of a grandchild, or when one of your children becomes married. Estate planning should not be something you do once and then forget about it. That’s why we often have clients meet with us to go over changes to their life and adjust their estate planning documents accordingly. It is always better to be proactive when it comes to estate planning and financial planning.
If you have any additional questions or would like to discuss these and other strategies that should be put in place after becoming suddenly single, please email me at email@example.com.