We often are asked to meet friends of our clients who are facing a major life event. Two events in particular — death and divorce — create significant financial anxiety at a time of high emotional stress. Not only do individuals face deep emotional challenges but often, at the same time, they also have to deal with an absolute and abrupt change in their daily world.
We have been honoured to assist many individuals in these most challenging of days – to help in our area of expertise: assisting with their financial lives. What makes these times particularly challenging financially is that, in most relationships, not everyone is equally responsible for managing the household finances. While sometimes managing the finances is a shared function, in many households, one person pays the bills, influences where and how investments are to be made, and drives decisions on debt, and bank accounts, etc. If you have never been responsible for managing your household finances, the exercise of suddenly having to pick up the financial pieces can be daunting and overwhelming.
The reality is particularly challenging for individuals who have been in a long-term relationship. It is unlikely that most individuals decide early on in a relationship to turn a blind eye to their finances, but rather, over time, one individual simply takes on greater responsibility. After being in such a relationship, to wake up one day having to learn how to run the household finances can be extremely difficult.
Certain steps should be taken when faced with these types of situations:
1. Understand Income and Expenses
The first step is to know your cashflow needs. While we recognise that doing a budget in a time of change is not easy, it is very important to know how much money is being spent and where. Looking at how much money has been spent over the last few months should be a great starting point. Equally important is knowing how much money is earned. If you earn less than you spend, you will need to make adjustments. This step is the most important to do early. Understanding and adjusting cash inflows and outflows early on in the process prevents difficult situations that may result in challenges and deep debt holes. It is also important to ensure that bills continue to get paid during the transition to make certain that no regular bill is overlooked.
2. Take Stock of Assets and Liabilities
In tandem with understanding income and expenses, it is equally important to understand assets and liabilities. When looking at bank accounts, investments, property, or business interests, it is useful to also look at how easy it is to access these assets. In the case of divorce or separation, accounts may be frozen or in your spouse’s name. In the case of death, funds may be harder to access and may need to be probated. In addition to understanding the value of these assets, it is very helpful to know in whose name they are registered. Finally, you should also have an idea of all debts outstanding and continue to service the interest.
3. Gather Wills, Powers of Attorney, and Insurance Policies
Finding these documents is helpful in ensuring that they can be updated if necessary, to change beneficiary designations, etc. It is also useful to have a copy of these documents easily accessible and to know how to find the originals if required.
4. Re-establish Advisory Relationships
Reach out to the relationships that have assisted in guiding your family finances up to this point. Your accountant or financial advisor should be a great resource to help you with the first three steps in this list. For certain individuals, this might be a good time to reassess those relationships and to decide whether it is best or even appropriate to stay with the existing advisors. However, making a change too quickly can also create challenges as the family financial history may be lost in the transition. On the other hand, if communication and personality are a challenge with the current advisor, a new relationship with a fresh start may be the way to go.
We have outlined a few of the key steps, but there are many others that will need to be taken of when you undergo a major transition. Having a strong team of supportive advisors through this process can help reduce stress and assist in providing a sense of control over your financial reality.
If you think you might face similar challenges in the future, there are steps that can be taken early on to ensure that you are well prepared.
Here are a few best practices when in a relationship:
- Both spouses should have access to online banking and be responsible for certain bills.
- Both spouses should be the primary account holder for separate credit cards.
- Both spouses should meet their key account relationships such as accountants, financial planners, investment brokers, insurance brokers, and mortgage brokers. They do not need to meet for every meeting, but it is a good practice to make an effort to be present and to build a relationship with those individuals.
- Spouses should ask questions when they are unclear as to a particular financial decision. If it cannot be explained in simple terms, it may not be a great financial decision to take.
- Spouses should create and regularly update an inventory of all household assets and liabilities including the value, account numbers, financial institutions, and key contacts and relationships.
We recognize how challenging life can be for those experiencing divorce or the loss of a loved one. We also understand that financial stress can add to this already difficult time. Having experienced trustworthy professionals by your side, working hard for you, and available during these life moments, can provide some relief and a helping hand.
At Tall Oak Private Wealth, we have had the privilege of assisting many divorcees and surviving spouses. We work side-by-side with our clients throughout this difficult time in life to reduce financial stress and help them build a stronger financial future.
If you would like to hear more about our Retirement VIEW, we would be more than happy to connect. Please click here to schedule a complimentary discovery call.