A group of men spent three days together at a beautiful retreat setting in Montana. They planned, prayed, and dreamed together about the future.
One of the men was a pilot, and he invited three of the others to fly back to Dallas with him. One of the four was an entrepreneur with a young wife and two boys below the age of five. Another was a banker who had three boys, one of whom was in high school and two of whom were in college. The third was a surgeon with three grown children, and the fourth was a pastor who also had three children.
The small plane took off all right, but en route to Dallas it disappeared. Several days later, when the wreckage was found, there were no survivors. In an instant, four women had become widows, and 11 children were left without a father.
I visited with one of the widows many months later, and she said her husband had always told her that in the event of his death, she needn't worry because his best friend knew all about their financial situation. The friend was well prepared to help her cope financially with her husband's death. Unfortunately, however, that friend had been one of the four men on the plane.
Death is rarely expected, so people rarely plan for it adequately. Yet when it occurs, it changes forever the lives – including the financial situations – of those left behind. Even couples who have discussed the financial implications of losing the other may discover their plans are no longer relevant because of those changing circumstances.
Karen Loritts, a regular speaker at Campus Crusade's Family Life conferences, tells the story of a different kind of loss – one that devastated another family. Karen was jarred awake one night by the ringing telephone. A friend of hers was calling in anguish over her marital breakup, which had shocked those who knew the couple. This woman and her husband were both hard workers, and the entire family was active in their church. As Karen listened to her friend pour out her feelings of grief, she silently prayed for words to comfort her friend – and shed some tears herself. "I felt her pain and cried at the prospect of having my friend struggle with this 'death,'" said Karen.
This series of articles is directed at women because far more women than men must navigate the road of widowhood or single parenthood. Seventy percent of all married women will be widowed, and marriages formed today have about a 41 to 43 percent chance of ending in divorce.1 In the vast majority of cases, the mothers are granted primary custody of their children.
Having said that, men who are widowed or divorced often must deal with financial fallout as well. If you are a man in either situation, this series certainly applies to you as well.
Mental-health experts estimate it takes about two years for a widow or widower to absorb what has happened and be capable of making major decisions again. The initial shock and numbness give way to a deep sense of loss and then a realization that those tasks that were once shared—including financial ones like tax preparation and insurance decisions—now must be done alone.
Because of that two-year period of psychological adjustment, I advised all my clients who were widowed not to make any major financial decisions during that time. However, the fear of being unable to maintain their standard of living often drives people to make major financial decisions too soon. In many cases, they make the wrong decisions.
You must make some decisions, of course, but be careful about making any big choices immediately. Here are the steps I recommend you follow.
First, look for funeral directions left by your spouse. They may be found in a will or in a separate letter.
Second, order (either from the funeral director or the county clerk's office) 10 to 20 certified copies of the death certificate. This needs to be done right after the funeral in order to claim the benefits due you from company pension plans, Social Security, life insurance proceeds, annuities, and so on. You'll also need the documentary proof of your spouse's death to change titles on cars and your home.
Third, arrange for someone to stay at your house during the funeral to protect your property. Unfortunately, unscrupulous people prey upon those who've been widowed, and a favorite ploy is to burglarize a home during a funeral.
Have your attorney review your spouse's will and file it in probate court if necessary. Collect any documents needed to claim death benefits (bank and brokerage statements, marriage certificate, and birth certificate). Contact your insurance agent, investment advisor, spouse's employer and former employers, and the Social Security office to start the process of claiming benefits due to you.
Keep a record of your cash flow so you can determine where you stand financially and what your living expenses are likely to be.
As money from insurance or employers begins to come in, deposit it in a bank in short-term certificates of deposit (CDs) or money market funds. One strategy is to put the money equally into 6-, 12-, and 18-month CDs so that you'll have money coming available to you every six months. At this point it's not necessary to worry about missing out on "better" investment opportunities. Your primary focus now should be to ensure you can pay your bills as they arise.
Update any of your insurance policies that name your deceased spouse as beneficiary. Change any joint billing and credit card accounts that have his or her name on them. If you are the executor of your spouse's estate, notify your creditors and satisfy the debts as they come due. If there are likely to be estate taxes, get professional advice to determine how much they'll be and when they'll be due.
Review all insurance coverage, especially medical insurance, to make sure you and your family are adequately protected. Have your will revised to reflect your changed circumstances. If you don't have a will, then get one. It's more important for a widowed or single parent to have a will than it is for a married couple. You may need to appoint a guardian for your young children or change the executor or trustee, since your spouse was most likely named as executor and trustee in your will.
Review your checking account or spouse's checkbook and files to determine if you may be due benefits from sources you didn't know about. Look for automatic checking account deductions for life insurance. Look for other possible benefits, such as a union policy, fraternal organization, credit life insurance, military benefits, or other life insurance policies.
By the second year, you should develop short- and long-term financial plans. Major investment decisions still do not need to be made, but it's time to do the following:
In the second year and beyond, implement your financial plan, making decisions about housing, investments, insurance, and lifestyle.
While this is the approach I recommend, it's not written in concrete. Depending on your personality, training, age, and income level, the sequence and time frame you follow may differ. I do strongly encourage you, however, to delay making major lifestyle and investment decisions to allow some time for grieving and adjustment. It may be nine months, a year, or two years. You need that time to adjust to the death of a significant part of your life.
Doubt about the future strikes every new widow and widower at a time when their security has been greatly shaken. Many fears and questions arise. If you've had no experience in managing money, even $1 million of life insurance may feel inadequate.
Realizing that God owns it all and provides all the resources you will need should help you overcome some of the fear.
Whether or not you'll be able to live as well in the future is determined by three things: your income, expenses, and long-term needs. I know that when you prepare a financial plan, peace of mind results. It results from knowing either what steps you have to take to get your house in order or that you really are okay financially.
Here are three rules for preparing a financial plan: Keep it simple, keep it flexible, and make it yours and not someone else's. These are the elements of a good financial plan: determine what you owe, what you own, what your income is, what your expenses are, what your long-term needs are, and the medical and liability insurance your circumstances dictate.
Your income may come from several sources. Life insurance proceeds can be taken either in a lump sum, which I generally recommend, or as a monthly income for the rest of your life. I have suggested that taking a pension payout is often better than taking a lump sum. That generally is true when a retiree has a spouse to consider, since a pension payout can provide income during the lives of both spouses.
As a widow(er), however, the life insurance payout is needed to provide income for you only. If you choose a lifetime payout and then die earlier than expected, little to none will be available for your heirs. The lump sum is also preferable because life insurance proceeds are often needed right away to pay for the funeral or final medical bills, or to pay off debt.
Furthermore, life insurance proceeds taken in a lump sum are tax free, while monthly payouts are partially taxable. By taking the money all at once and investing it yourself, you have more control over the results—and can provide a greater inheritance should you die relatively soon.
The second source of income is salaries and wages from either salary continuation plans your spouse may have had or, more likely, your own ability to work.
Your spouse's former employers may have 401(k) plans or pension plans that will provide you either regular income or lump sum payments. Your age, the amount in the plan, and your needs will determine the best method to take those payments. Again, the lump sum option is generally preferable for the reasons given above.
Social Security may provide some benefits for the widow(er) who has children under the age of 18, as well as the surviving spouse over the age of 60. Your local Social Security office can answer questions about the benefits to which you're entitled. How much you receive will depend on how much you and your spouse paid into the Social Security system.
Some of the less-obvious sources of income – fraternal organizations, unions, and perhaps the military – may also provide certain benefits.
Once you add up all the sources of income, you've completed the first significant step in determining whether you'll be able to meet your needs and your children's needs.
The second major step is to calculate what your expenses will be. That will take some time, as many things will be changing. Most couples assume that if they have an income of $40,000 and are saving no money, the spouse would continue to need $40,000 to maintain his or her lifestyle. That's not the case. Expenses such as food, clothing, and transportation will likely go down. Other expenses, such as bills for home repair, lawn care, housekeeping, cooking, and other tasks done by your spouse may go up.
If you weren't doing it before, you'll now need to reconcile your monthly bank statements. In the process, you'll be reviewing how you're spending money, and you'll have a greater sense of control over your financial situation. At first you may feel less secure because you understand better how much money is being spent, perhaps without the provision of regular income from your spouse. Over time, however, you should begin to feel more control and security.
The third major factor determining your standard of living is your long-term major needs. Make a list of those needs, the dates when they're needed, and the estimated amount that will be needed. Typical needs include college education for your kids, debt payoff, and lifestyle needs such as replacement of cars and home repairs. Committing the needs to paper will begin to give you a sense of control and security because you eliminate the anxiety of the unknown.
Life insurance also becomes a key consideration. If you're a single parent and don't have enough financial resources, it's vital that you provide for your kids through insurance on your life. Life insurance may also be appropriate to meet estate tax needs. A competent financial advisor can help you determine whether you need it and, if so, how much coverage you should obtain.
The last issue affecting how well you'll be able to live is the whole area of investments. Life insurance proceeds or investments your spouse left you may be your primary source of income. How much money is available to invest is extremely important to your long-term financial security. Always remember that every investment carries some risk. Generally speaking, the higher the rate of return you're seeking, the greater risk you're taking. You can minimize the risk in two ways. First, take a long-term perspective on your investing. Don't try to get in and out of investments as markets change. Second, make sure your investments are well diversified so that when one goes down, as it most certainly will, others will provide stability.
Please understand that I'm not advocating divorce. God hates divorce (see Malachi 2:16), and so should we. Marriage vows are taken far too lightly today; when couples say "Till death do us part," they often mean "Till we don't feel in love anymore." We need to take more seriously the warning of Deuteronomy 23:23: "Whatever your lips utter you must be sure to do, because you made your vow freely to the Lord your God with your own mouth." The commitment to love in spite of feelings and circumstances is essential to upholding a marriage through thick and thin, and reconciliation should always be our goal if it's at all possible.
I have to acknowledge, however, that couples do divorce — even Christians — and say that if it appears to be a definite possibility in your case, you need to make some appropriate plans. Like a widowed person, a divorced man or woman faces enormous psychological, emotional, and financial adjustments. Therefore, if you go through divorce, you should give yourself some time before making any major investment or financial planning decisions. Obviously, day-to-day concerns have to be taken care of, but choices like when and where to move, estate plans, and investment decisions (if any) should be delayed. You might delay those decisions anywhere from six months to two years.
Financial problems often contribute to divorce. In fact, more than 50 percent of the people who divorce indicate that financial problems fostered the breakup. Those problems may be only symptomatic of others, but they clearly add to the strain the family is under.
As we've already acknowledged, women are often more vulnerable financially in a divorce, so I now want to focus on the steps a woman needs to take to protect herself during a divorce.
The first step is to pick a competent and trusted advisor. You may want to choose a personal advisor as opposed to a financial advisor first. A friend, another woman who has gone through a similar situation, or the elders at your church may be able to guide you through the process of selecting an attorney to handle your side of the divorce. Your goal should not be to "get" your husband or take him for all he's worth, but to be sure you and your children are provided for.
The financial cost of divorce may be significant. Even a simple, uncontested divorce can cost from several hundred to several thousand dollars in legal and filing fees, depending on how much property is involved.
It's possible to avoid attorneys entirely by using a do-it-yourself divorce kit found in many bookstores. I don't recommend that approach, however, because you could easily overlook crucial details. Your situation may not be as simple as you think. Anytime property or children are involved, the situation is complex. Also, each state's divorce and property laws are different. The divorce can be further complicated if you've lived in more than one state or acquired property in more than one state. For the same reasons, you should never attempt to be your own divorce attorney.
The primary way to reduce the cost of divorce is to avoid contentiousness. The more contentious your split, the more expensive it will be. If your husband agrees, you might want to approach a service such as Christian Conciliation Service1 or some other mediating body that could help reduce costs and still provide competent advice.
In addition to choosing trusted advisors and legal counsel, you need to do the following during the divorce process:
The last financial step in divorce, one that could take a long time, is the negotiation process. In that process, all assets will be divided; the responsibility for debts will be determined; child support amounts will be set; alimony amount and duration will be decided; and last and very important, visitation rights will be established. How well the negotiation is done will depend not only on the information you provide your attorney, but also on his or her skill as an advocate for you.
How well the settlement is negotiated will largely determine the tax consequences of the divorce too. What appears valuable before taxes may be far less valuable after taxes. For example, any alimony paid to you will be deductible to your husband on his tax return and taxable to you as income. On the other hand, child support payments are neither taxable as income to you nor deductible by him.
To illustrate, suppose your ex-husband pays you alimony of $35,000 the first year, $20,000 the second year, and $5,000 the third year. He will be able to deduct $60,000 from his tax returns over those three years, and you'll have to report taxable income of $60,000. Thus, your attorney should attempt to increase the amount of alimony paid to take into account the tax benefit your former husband is getting and the tax liability you are assuming. If you were to receive $60,000 of child support over a period of years, you would pay no income tax. Child support is better for you than alimony from a tax perspective, but is less attractive to him financially.
Another issue relative to child support is who gets to claim exemptions for the children on tax returns. Generally, the parent who has custody of the child for more than one-half of the year gets the exemption unless the other spouse signs a waiver. (Refer to IRS Publication 504 for more information on this topic.)
If your spouse is extremely well paid, he should be especially amenable to signing a waiver, because dependent exemptions are phased out anyway for single taxpayers with higher incomes. If your former husband fits that category, he'll get no benefit from the exemption, so it should be used by you if you're in a lower tax bracket.
This is all a moot issue, of course, if you provide more than half the support of your child, which can be determined by the family budget you've already prepared. In that case, you can just take the exemption on your return and reduce your tax liability accordingly.
Property settlements can also have tax consequences. Generally, property transferred as part of a divorce settlement is treated as a gift between spouses, so no taxes are paid on the transfer. But certain assets, such as an IRA or 401(k), will have future tax consequences. Many women recognize too late that $20,000 in a savings account (not taxable) is much more desirable than $20,000 of their husband's 401(k) (taxable upon withdrawal and not accessible until age 59½).
Although the transfer of most property without taxation sounds good, keep the following in mind. If property (stock, real estate, etc.) that originally cost $1,000 but is now worth $50,000 is transferred, you don't have $50,000 available to you. When the property is sold, you will have a taxable gain of $49,000. The income tax on the gain will reduce substantially the amount of money available to you. If, on the other hand, property that cost $50,000 is transferred to you and you sell it for $50,000, you have no tax on that gain, so you really do have $50,000. Thus, the specific property transferred in the divorce settlement can change your cash flow significantly.
Another issue in the property settlement is the family home. If that's transferred to you, you get the tax benefit of avoiding most or all of the income tax on the gain from a sale. Current tax laws allow you to exclude from income any gain up to $250,000 ($500,000 for a married couple) from the sale of your principal residence.
Finally, while the divorce is being negotiated, you need to review the medical insurance coverage you and your children will have. If you need to provide the insurance yourself, chapter 29 will help you make good decisions.
By the time the divorce becomes final and all property transactions are completed, you should have your own bank and brokerage accounts and credit cards. Now, besides living in accordance with a financial plan, you need to rewrite your will, change the beneficiary for life insurance policies on your life, and review your children's medical insurance coverage, which may have been provided by your spouse.
Those protections become more critical now than ever because you may be your kids' sole support. Chapters 28 and 29 can help with your insurance questions, and an attorney can assist you with the will revision. These steps are too important to delay beyond the first few weeks after the divorce is final.
The financial consequences of divorce on single mothers are often devastating. In my experience in counseling those who have gone through a divorce, I've concluded that couples rarely do as well separately as they did together. It's important from a biblical perspective, however, not to be resentful, bitter, or fearful. Rather, you need to be realistic about where you are financially and what your alternatives are, as well as remain dependent upon a faithful and all-powerful God.
You can begin to determine whether lifestyle changes will be needed by developing a financial plan. You'll confront the same questions, problems, and challenges during the various seasons of life that a married couple will face. The primary difference will be that you don't have the financial resources you had as a couple, and therefore you may be forced to choose different alternatives.
While your children are young, for example, you'll be concerned with living on a budget, avoiding debt, maintaining the right life insurance, having a will, deciding how to school your kids, training your children to manage money, and choosing whether to buy a house (if that's possible for you) or rent – just like a married couple.
During your children's teen and college years, you'll be concerned with providing a secondary education for them. It may be more likely that they'll have to work to pay part of the cost, attend a less expensive school, or rely on financial aid now that household income is reduced. That wouldn't hurt them, of course, and may be God's best way of supplying their college education. What you spend on their cars and weddings will also be affected.
Those are just a few examples. The underlying reality is that you'll almost certainly have to take a more conservative approach to planning and managing your financial life than you did when you were married.
One other financial challenge you may face is caring for your aging parents. Studies show that women provide most of the care for their parents. Furthermore, nearly 40 percent of those caring for the elderly are still raising children of their own.
A U.S. House of Representatives report showed that the average American woman will spend 17 years raising children and 18 years helping aged parents. As people live longer and chronic disabling conditions become more common, the likelihood increases that your parents will need extra care.
The topic of caring for aging parents is broad and difficult. When your parents move in with you or you're financially responsible for them, you have to revise the family budget to reflect the increased expenses. There are no easy answers. The only thing you can do is discuss that possibility ahead of time with your parents and make provisions when everyone is fully competent to do so. Such decisions are always best made ahead of time rather than in the heat of the need.
As a single-again woman, you need to remember that the keys to financial success are very simple regardless of your financial situation:
Those may prove difficult to follow, I know, but God is faithful.
I'm hesitant to tread very far into all the relational and spiritual aspects of remarriage. Let me just comment on the unfortunate possibility of a widowed or divorced individual – particularly one with sizeable financial assets – being preyed upon by someone of the opposite sex. I've observed how vulnerable the newly single may be to remarrying too quickly or remarrying those primarily interested in their money. The stories are sad but true.
Certainly, remarriage should be considered carefully and only after a couple has sought premarital counseling. Here are a few pointers specifically related to finances that may be helpful:
My wife and I were visiting one of the widows described earlier. It had been more than two years since her husband died in the plane crash. She has had a significant ministry around the country sharing some of her challenges as a widow. Her life has been no easier than that of other widows, but she turned the tragedy into an outreach to others in similar circumstances.
As we talked with her she raised an interesting point. "After these last several years," she said, "I have reached an identity crisis. Who am I? Am I to be forever my husband's widow, or am I a unique person? I do not want to make a career out of widowhood."
In saying that, she expressed considerable insight into one of the keys to building a new life after widowhood or divorce, and that's determining who you are and what you want to be. God has given you experiences that build wisdom if interpreted and used correctly. And that wisdom can be a tremendous benefit to others who will go through the same dark valley.