Financial Planning for the Newly Single

By Donna Walton, Wealth Strategist

People often find themselves single again whether through divorce, termination of a domestic partnership or death. Transitioning to single life may not be easy and may involve a list of property and financial issues to deal with. While this list may change due to circumstances, below is some important information to consider when evaluating your financial and ownership status as a newly single person.

Update accounts and other assets
After your marital or domestic partnership status changes due to divorce, termination or death, you need to take stock of your assets and review and update your bank and securities/investment account titles and beneficiaries. Understanding the assets that are now in your name alone from assets that are subject to probate if your spouse is deceased or, in the case of divorce or termination, the assets that now belong to your former spouse or domestic partner is key to preventing confusion and potential conflicts down the road.

As soon as your marital or domestic partnership status legally changes through death, divorce or termination, you should contact your banks and financial institutions where you have jointly held accounts to notify them of your new status and change the title of the accounts to become the sole account holder. Widows and widowers will need several copies of their spouse's or domestic partner's death certificate and any relevant probate documents or transfer on death certificate. Accounts must be split according to the divorce or termination agreement and to protect your personal assets, you should change your account numbers and provide new beneficiary designations and Transfer on Death agreements. You should also review any Agents under Powers of Attorney and revoke and your personal trust and estate attorney should draft new Powers of Attorney.

If you owned property together with your spouse or partner, the decedent's Will or the divorce or termination agreement should also address title and ownership of the home, cars or boat and you should talk to your personal attorney about transferring title for that property or executing a quitclaim deed on a home.

Updating your accounts and changing property titles establishes your financial autonomy and ensures your financial identity is distinct from your former partner’s.

Notify creditors
Creditors need to be made aware of the death of your spouse or partner or the dissolution of a financial partnership through divorce or the termination of a domestic partnership. For example, if you owned a home with your former spouse/partner and both of your names were on the mortgage, a quitclaim deed will not remove your name from the loan. Talk to your personal attorney about any concerns or questions you may have with creditors.

Update your financial goals and plans
It is important to assess your new financial situation to be able to take charge of your new status and begin to plan for the future. Updating your financial plan is a good place to start.

Create a budget
Being newly single often means a loss of income. Also, expenses that were once paid jointly must be paid solely by you. Some expenses may be reduced or eliminated. Since expenses and household income could change it is important to create a new budget to reflect that change. The first step is to create a list of day-to-day expenses and track those expenses over several months. You also need to list outstanding debt and account for any savings. Once you know your expenses, it will be easier to see if your income will be able to meet your expenses and cut expenses where necessary or look for ways to increase income.

Reevaluate goals
Your new single status means your financial goals may have also shifted. It is important to determine your new goals, both short term and long term, so you can begin developing a plan to meet these new goals.

Find a financial advisor
Your new single status may prompt you to consider if you are comfortable with your current financial advisor or if you would like to work with a new financial advisor. Developing a relationship of trust with your advisor is important. If your financial situation has changed, you may want to consider fees and expenses.

Asset allocation
You should review your asset allocation with your financial advisor to determine if your current allocation is in line with your new goals and risk tolerance. As a married person or as a part of a domestic partnership, many of financial decisions may have been based on joint needs and decisions. As a single person, your goals, time horizon and risk tolerance may have changed. It is important your allocation reflects these changes.

Liquidity needs
Post divorce or death of a spouse or domestic partner, there may be an increased need for liquidity to make purchases, pay debt or other outstanding bills. It is important to talk to your financial advisor and accountant about the best way to create that liquidity. It is important to review the tax consequences of taking assets from retirement accounts or selling investments to create liquidity. In some instances, it may be better to take a loan or line of credit.

Rebuild emergency fund
Divorce or illness of a spouse or domestic partner could cause depletion of your emergency fund. It is important to start or rebuild an emergency fund to cover unexpected expenses.

Build credit
Some people enter their new single status with little or no credit history of their own. Start as soon as you can to establish credit in your own name build up a good credit rating.

Update estate plan
It is important to update your estate planning documents after a divorce, termination or death of a spouse or domestic partner. For many individuals, their spouse or domestic partner was the primary beneficiary of their retirement accounts and/or estate and had been named as the executor, trustee and power of attorney. It is important to visit an estate planning attorney to change and update your Will, trust and any beneficiary designations as well as your Power of Attorney and any health care instruments.

In the case of divorce or termination of a domestic partnership, work with your attorney to remove your ex-spouse or partner from your estate plan. Failing to update your will, trusts and any beneficiary designations during or following a divorce or termination could result in your ex-spouse or domestic partner inheriting your assets.

If you have adult children, it’s also a good time to discuss their personal estate planning. If they already have Wills, trusts or other beneficiary documents, they should make any appropriate updates such as removing a deceased parent as an executor, trustee, guardian or agent or discussing removing a parent after a divorce or a termination. While not easy conversations to have, they are essential.

Update beneficiary designations
As you review and update your insurance policies, financial accounts and estate planning documents, you should also review any beneficiary designations to ensure they are correct and up to date. This is especially important if your deceased/ ex-spouse or domestic partner was listed as a beneficiary. Not doing so can cause confusion and complications upon your passing and lead to your assets not passing according to your wishes and possibly depleting your assets due to legal expenses.

Life insurance
If your spouse or domestic partner had life insurance and has passed away, you need to contact their employer or agent to file for the life insurance proceeds. If you are divorced or your domestic partnership is terminated, you should review your own policies to determine if your current coverage is adequate or consider obtaining coverage. You should update your beneficiary designations.

Social Security
Depending on your situation, you may be eligible to receive benefits based on your spouse's record. If your spouse has passed away, you may be eligible for a one-time $255 death benefit from Social Security, as well as survivor benefits. Benefits may be taken at your full retirement age, or you can elect to receive reduced benefits earlier.

Divorced spouses also may be eligible to receive Social Security benefits if they were married longer than 10 years.

The rules regarding survivor benefits can be complex so it is important to contact the Social Security Administration as soon as possible to determine what if any benefits you qualify for and if you do what your options may be.

Health insurance
If you received health insurance through your spouse or domestic partner, you may be able to continue through COBRA for a period of time (up to 36 months) to help you to transition to another plan. COBRA benefits can be expensive. You should begin to look at other health insurance plans through your employer or an individual plan as soon as you can.

Review retirement accounts
If your spouse or domestic partner owned retirement accounts, such as 401(k)s, 403(b)s, and Roth and Traditional Individual Retirement Accounts (IRAs), those accounts will pass to a surviving spouse outside of probate if that spouse is named as the beneficiary. The transfer of assets could be a long and expensive process if retirement accounts did not name a beneficiary and will need to be settled in probate court. Contact the institutions holding the retirement accounts to let them know of your spouse's death and have them review the designation of beneficiary forms with you. You will need copies of their death certificate.

Surviving spouses get more options when inheriting retirement assets than other beneficiaries, such as the ability to roll it into their own IRA or 401k. Because the IRS has very specific rules regarding spouses who inherit assets from a qualified retirement plan, it is important to consult with your tax advisor before making any decisions and moving assets.

In the case of a divorce, a legal arrangement may be made as part of the divorce settlement that acknowledges a party's right to receive a portion of their former spouse's retirement account balance. In a court-approved transaction as part of a divorce settlement, IRAs are divided through a one-time distribution from one spouse's account to the other's account. It is important to work with your attorney to make sure it is implemented correctly.

Review tax status
If you are newly single, you will need to adjust your tax planning based on your income and other factors that have changed. Work with your tax professional who understands your changing status.

Build a team of professionals
Many people benefit from having a team of professionals, including attorneys, accountants, tax experts and financial advisors, to help them with financial, property, tax planning and estate planning decisions. Having a team already in place that knows you, your family, your financial situation, and your goals, can be a great help to you as a newly single person.

For those who don't currently have a team, you should consider building a team of your own. It also may be time for you to change teams, especially if you believe your current advisors weren't attentive to your needs or you weren't involved in discussions at all. Especially post-divorce or the termination of a domestic partnership, it is important to have a new team of professionals that understand your individual needs and goals going forward.