Sometimes it seems we spend our whole lives preparing. We plan ahead for vacations and holidays, hoping we’ll be rewarded later with some relaxing time off. We save for our children’s college years to help ready them for the future. But all too often, we fail to plan for one important milestone–the day that many of us will find ourselves alone because of a divorce or our husband’s death. Today, about half of all women who are over 65 are widows, and nearly 70 percent of them live by themselves.
Of course, actuarial charts aren’t the only reality we have to worry about. In the U.S., an estimated 52 percent of all marriages end in divorce. Consequently, it’s imperative that women become financially savvy.
If you want to protect yourself but aren’t sure how to do so, here are 10 smart ways to get started. You’ll find advice for women in solid marriages and for those who may be contemplating or facing divorce.
FOR THE HAPPILY MARRIED
1. Find out where the money is. Do you know what mutual funds you and your husband own? Do you have bonds stashed somewhere, or individual stocks? If something happened to your husband, would you know where to find the life insurance polic y and/or annuities, or know the details of his pension plan?
It’s crucial, experts say, that every woman follow her own household’s money trail and understand it. “The most important thing we can do for ourselves is to be partners in financial decision-making, and not simply defer to our husbands,” says Violet Woodhouse, an attorney, certified financial planner and co-author of “Divorce & Money: How to Make the Best Financial Decisions During Divorce” (Nolo Press).
To pull this off, you’ll need to review copies of all the financial documents that your household generates. Make sure this paperwork remains at home–not in your husband’s office. Or at least have copies at home or in your office of such documents as insurance policies, brokerage account activity, pension and bank statements, and wills.
2. Double-check beneficiaries. Is your husband named as your beneficiary on your 401 (k) plan, an IRA or a life insurance policy? Just as important, are you named on your husband’s policies and accounts? You’d better be sure, because the consequences could be disastrous if you are wrong.
“You may be happily married to a fellow for 10 or 12 years before he dies suddenly of a heart attack. Only then do you discover that he never took his ex-wife off his life insurance policy,” says Dee Lee, a certified financial planner in Harvard, Mass., and co-author of “The Complete Idiot’s Guide to 401(k) Plans” (Macmillan USA).
What happens in a case like that may seem incredibly unfair, but it’s perfectly legal. The ex-wife walks away with the cash.
3. Obtain your own credit. With several credit cards in your wallet, you might assume you’ve got credit in your own name. But if your husband is the cardholder, the credit is in his name, and you’ve simply been issued a courtesy card. If something should happen to him, you’d no longer be authorized to use it. To find out whose name each of your cards is in, call the card issuers and ask.
You should also periodically check your credit history. Mistakes on your credit report could ruin your chances to obtain loans, rent an apartment or have your own credit cards. Check your credit with any of the three major credit bureaus: Equifax 800-685-1111; Experian 800-392-1122; and Trans Union 800-888-4213.
4. Make sure each of you has an up-to-date will. If your husband should die without a will, some assets could slip out of your hands, depending on state laws, warns Barbara Kate Repa, an attorney with Nolo Press, a publishing house that specializes in self-help legal materials. Some of your husband’s assets could be awarded to your kids or even to grown children from a previous marriage.
5. Aim for a better retirement plan. While we women typically outlive men by about six years, our pensions–when we even have one–are about 50 percent smaller. A generous pension or 401(k) plan can make a huge difference decades from now.
6. Read your joint tax return before signing it. While not a happy thought, you don’t want to be liable for the tax mistakes or any possible dishonesty on your husband’s part if you should one day divorce. In the past, it was almost impossible for a woman to claim to the IRS’s satisfaction that she was unaware of the tax return errors made by her ex-partner. This became a women’s issue because the IRS often found it easier to locate an ex-wife than a man who may have vanished. But in 1998, Congress made it easier for women to claim an “innocent spouse ” provision to avoid the tax bill. Women may also be able to limit their tax liability to the amount traceable to their own income.
FOR WOMEN FACING DIVORCE
1. Play it smart when dividing assets. First, get an accurate picture of your household’s net worth. “Women definitely overlook assets,” observes Sharon Naylor, author of “The Unofficial Guide to Divorce” (Macmillan USA). Here are a few that Naylor and others say wives typically forget: pension plans, IRAs, cash value of life insurance policies, stock options, vacation or sick pay, work bonuses paid not long after a separation, military benefits and frequent flyer miles.
If you’re trying to reconstruct your financial paper trail, the most valuable documents you can possess are past income tax returns. If you don’t have the originals, you can get copies by calling the IRS (800-829-1040) and requesting Form 4506. (You can download Form 4506 at the IRS’s Web site at www.irs.ustreas.gov.)
What divorcing women should be concerned about holding on to is a piece of their ex-husband’s pension benefits, which can be a marriage’s largest asset. The laws now provide that most pensions can be divided at divorce, but doing so can be extremely technical–and mistakes can be permanent–so it’s best to seek the counsel of an attorney who is an expert in this area, advises Karen Ferguson of the Pension Rights Center. For more information, see “Your Pension Rights at Divorce: What Women Need to Know.” The book can be ordered from the Pension Rights Center, P.O. Box 19821, Washington, DC 20036.
2. Remember the 10-year rule. If your marriage has lasted almost a decade, however, you might want to postpone the breakup for a few months. A 10-year wedding anniversary makes a great deal of difference to the Social Security Administration. You can collect Social Security checks based upon your husband’s earnings if your marriage lasts at least that long. (The federal government uses the official date of your divorce–not the beginning of a legal separation–to determine the length of a marriage.)
If you were married and divorced twice, but you hung in there for at least 10 years both times, you’ve got an option. You may claim the benefits of whichever former husband generates the biggest Social Security payments.
3. Close joint credit-card and bank accounts. If you’re struggling with divorce, you certainly don’t want a spiteful husband running off on vacation with the plastic. You’ll need to close all joint accounts, but before doing so, make sure you have established credit and a bank account in your own name. 4. Don’t depend upon your ex-husband’s investment moves. Thinking their partners were financial wizards, some women, after a divorce or death, don’t make changes to the investment mix originally chosen by their husbands. For most women, this is usually a bad idea. “You can’t assume the investments that fit you as a couple will fit you as a single person,” advises financial planner Woodhouse.
