Divorcee/Widow’s Financial Priorities
Divorce and widowhood are still a financial shock for women, though many have been working for years and sometimes decades.
Widows, divorcees face financial wake-up call when spouses are gone (as a result of death or divorce) as they now have to do everything themselves out of limited financial resources. This becomes complicated if they have to take care of Child. It gets further complicated, if they have to take care of aging parents, who will require expensive health care.
Women pay a higher economic price for divorce, separation, and widowhood compared with men.
While it’s long established that divorce can harm your standard of living, particularly if you’re not the primary wage earner in the household, people rarely address the financial repercussions of divorce before it happens. Remember that women’s standard of living falls after a divorce, while men’s rises.
However complicated and exhausting the entire process of divorce is, one cannot ignore the financial impact it will have on one’s future.
Divorce is one of the most monumental events in anyone’s lifetime and an extremely difficult one at that. Notwithstanding the emotional stress that it may cause, it also has serious implications on the finances of the stakeholders. While family and friends can only extend emotional help, the financial solution usually requires expert support. However, no matter how complicated and exhausting the entire process might get, one cannot ignore the financial impact.
Older wives are doubly disadvantaged relative to their husbands because, among other factors, they're less likely to recoup their losses from divorce by remarrying.
In the event of divorce, post divorce men typically make more money than women, as men more likely to have access to pensions and thus likely to achieve financial security and live comfortably in later life compared with women, regardless of her marital status.
Divorced or widowed women walk a fine line when it comes to their newfound financial responsibilities. On one hand, in an attempt to keep emotions from clouding sound decision-making, it often makes sense to take time for certain decisions until the person feels more settled where as certain issues may require prompt attention.
Women generally live longer than males, on average by 6 to 8t years. This difference is partly due to an inherent biological advantage for the female, but it also reflects behavioural differences between men & women. Thus their future financial planning should take this factor in to consideration.
Some issues about widowhood
Many times a widow’s grief can lead to “brain freeze” leading to their inability to get a grip on their finances amid the grieving process.
For many new widows, memory is weak, attention span is short and decision-making is downright difficult.
They may struggle to figure out what the ‘new normal’ is for them financially, especially if they haven’t been activly involved in their finances before.
The death of a spouse unleashes a deluge of financial tasks. Many widows aren’t as familiar with investing, insurance policies, taxes or estate planning because, in many cases, their husband handled these financial matters.
What they get is Life Insurance settlement (provided husband was sufficiently insured) and accumulated savings to take care of themselves, children and husband’s aging parents.
In divorce, women gets recurring alimony where as there are no such recurring cash flow in widowhood.
If husband was intitled to Government pension, as a wodow women will get reduced pension to take care of themselves, children and husband’s aging parents.
Top 5 Priorities
1. Get a handle on things.
Take invesntory of your’s and Family’s financial assets and liabilities, list them with as much details like Bank, Account number, maturity date etc.
List of Properties that Family owns directly as well as % share in larger family business or biger family having ancestor peroperty, with their identification, area, date bought, area in sq. ft. (carpet area), cost of property, current estimated market value, whether there are any liabilities like mortgages on any property and details thereof like pending liability as on latest date.
List Financial Assets
1. Financial Assets in Bank-Bank FDs, Savings or Current Account balance as on latest date with accrued interest
2. Investment in Savings Instruments like PPF, Post Office Savings Schemes etc.
3. Investment in Shares with D’mat account numbers, cost, date of purchase, current Market Value.
4. Investment in Life Insurance policies with details such as date taken, maturity date, maturity value and current NAV
5. Business Capital: This will represent balance in Partnership Account plus unrealised gain of Business Properties.
6. Gold & Jewellery holding (put Nil value against Basic Jewellery)
Sum total of this (Property plus Financial Assets) indicates Family’s current Net worth.
2. Turn to a trusted financial professional (like Chartered Accountant or Wealth Planner) for guidance and support.
Ensure that all name transfer on Property takes place.
Ensure that based on Nominations, all Financial assets are in your name.
Continue with HUF to take advantage of Basic Exemption limits and other deuctions.
Ensure that you submit new Nominations in all assets-Properties and Financial Assets
Assess the investment portfolio and determine an asset allocation strategy going forward, with guidance from a trusted expert. Divorce or the death of a spouse can dictate a major change in one’s financial portfolio, outlook and priorities. You tend to be more conservative, avoid risky investment products and worried about everything. Don’t panic, just handle your self and look for future priorities.
Get a handle on cash flow and spending plan for Short, Medium & Long term based on priorities and new reality.
Consider getting unbiased guidance from someone who can evaluate your financial position and provide objective, comprehensive suggestions without any conflict of interest.
3. Future Financial Planning
How much money do you need to fulfill all your needs?
Once you have responsibility to support a family that is the stage at which you build your corpus.
Your strategies depend on two important factors:
· The age at which you can retire out of work, if you plan to work going forward.
· Is your savings enough to let you retire today, if not, how long would you need to continue working?
These factors are in turn dictated by the following parameters:
· The income support you seek for your self & family members
· The savings that you have
· The investment budget that you currently have
· The time frame that you have to retire
· The rate of inflation
· The risk you wish to take
After lot of discussions, debate, arguments and counter arguments the couple should list down their
Financial goals with stipulated time frame in a structured manner as follows ‘Family’s Wish List”:-
1. Medical Elegancies Fund
2. House upgradation, Weekend Home, move to smaller home or shift of locality or town
3. Car, 2 nd Car
4. Higher Education of Daughter, son (at current cost)
5. Foreign Studies of Daughter, son (at current cost)
6. Marriage expenses of Daughter (at current cost)
7. Marriage expenses of Son (at current cost)
8. Foreign Tours, Pilgrimage
9. Trust Fund for doing good things that you like to share with others
Of course, everyone in family should be sufficiently covered for health Insurance, which should be renewed every year. For couple, take Top Up plans, which cost very little.
How much, in what kind of Product: Insurance plans are meant to manage the life contingency risk first before extending their reach to cater to other life goals. A lot of financial goals of a household can be adequately covered by way of insurance plans.
Amount of Insurance will be equivalent of gap in your Corpus that means Total Funds required as Gross Corpus to meet recurring expenses and all wish list at current cost minus available assets.
Term insurance policies are also relatively cheaper to acquire as compared to other insurance products.
Returns from Life Insurance Products: Although actual returns would depend on one's age, term and the premium amount, the average IRR (internal rate of return) in most traditional plans, including money-back and endowment, lies between 4 and 5 % per annum, which less compared to even PPF or NSE returns
Tax and estate planning issues
Understand all taxation issues like due date of filing tax returns & tax payment liabilities.
Fortunately, India currently does not have Estate Duty Taxes unlike USA, UK, Australia, where Estate Duty varies from 25-40% the assets transferred upon death. India at some stage in future would consider levying Estate Duty Tax on inheritance for High Networth Indivisuals (HNIs) & Families and rearranging your financial affairs is critical particularly for Wealthy Families.
4. Wealth Planning
Wealth refers to the state of being rich or having an abundance of material assets and money. Wealth measures the value of all the assets of worth owned by person, family. Wealth is determined by taking the total current market value of all physical and intangible assets owned, then subtracting all debts. Essentially, wealth is the accumulation of resources. Wealth can be categorized into three principal categories: personal property, including homes or automobiles; monetary savings, such as the accumulation of past income; and the capital wealth of income producing assets, including real estate, stocks, bonds, and businesses Wealth planning is the art of structuring your wealth while building it, preserving it and is a mix of tax planning, wealth protection, estate planning
5. Estate & Succession Planning
Estate planning is the preparation of tasks that serve to manage an individual's asset base in the event of their incapacitation or death. Estate planning is a process of succession planning through combination of instruments like Nominations, Wills or trusts, Family Arrangement etc. The wealth transfer plan you put in place now can create enduring benefits for the people and philanthropic causes that matter most to you.