Becoming financially independent due to divorce or the death of a spouse can be both financially and emotionally devastating — and it’s increasingly common for women. Knowing how to navigate through these transitions is pivotal, since the numbers can be harrowing.
Statistics show that women over 65 are twice as likely as men to live alone. Women’s average life expectancy is five years longer than men’s, so it’s no surprise that many women outlive their husbands. Among people 70 years and over, 51% of women had been widowed versus 23% of men.
Then there’s another transition many are forced to consider: divorce. “Gray divorces” among those aged 50 and older more than doubled from 1990 to 2015. This has resulted in increased financial insecurity because the divorced individuals have fewer years to recover net worth lost in the divorce and are often at a disadvantage if trying to re-enter the workforce.
Financial insecurity in gray divorces especially impacts women, who experience a 45% reduction in standard of living — over two times the decline older divorced men experience (21%). This group experiences a significantly higher poverty rate than any other group at that age, including widows.
Being financially prepared for divorce or widowhood
Many women are not financially prepared for divorce or widowhood for various reasons, including lack of involvement in their family’s financial affairs. You may be surprised to learn that 56% of women — including 61% of millennial women, a greater percentage than Generation X, baby boomers or WWII generations — still cede control of their finances to their spouse.
It’s not just heterosexual couples either. Only 25% of women in same-sex couples say they’re highly knowledgeable about investing. Knowledge and confidence are two big reasons women in any type of relationship cede control of their finances.
A 2017 UBS study showed that 59% of widows and divorcees wish they had been more involved in long-term financial decisions, and 64% of widows and 53% of divorcees blame themselves for not being more financially involved.
Here are some steps women can take today to gain confidence and increase participation in their family’s financial situation with the intent of easing the financial burden of an unexpected transition at any point in life.
1. Stay informed in family finances
A great first step to becoming more involved in family financial decisions is open communication and a candid conversation between partners about their joint financial situation.
If you’re currently unmarried or engaged, it’s best to have this conversation before saying “I do”. Ask your spouse-to-be questions about their financial situation, including how much and what types of debt they have, what investments they have, what they spend their money on, and what their credit score is. This will not only set a solid foundation for both spouses to be involved in financial decision-making, but can also ward off future financial disagreements.
In day-to-day household operations, women are 12% more likely to pay the bills in most states across the country. However, handling of bills and day-to-day household expenses does not always translate to knowledge of the family’s long-term financial security, which encompasses many other areas.
Both spouses should always be aware of the following: sources of income and expenses, assets and liabilities, location of accounts and important documents, amount of insurance coverage, how investment accounts are allocated and whether the investment allocation is appropriate for both spouse’s risk tolerance and long-term goals.
2. Think long-term
The first step to preparing for a major life event is understanding that the worst can happen. While not pleasant to think about, married couples need to understand the financial consequences of one of them passing away prematurely.
For example, couples that work with financial advisors likely use scenario planning to determine what their financial plan will look like if one spouse passes away early, which can impact the amount of insurance coverage they purchase.
Couples that only focus on the day-to-day decisions without thinking long-term may underestimate the inherent risks in their financial plan and never take steps to address them — often realizing too late the impact of this serious financial decision. This UBS study found that only 55% of women said that death or divorce would have a major impact on a woman’s finances. In reality, the number of women who suffer financial consequences is much higher than that.
3. Put an estate plan in place
What do Prince, Michael Jackson, Amy Winehouse, and Aretha Franklin have in common? They all died intestate, without a will. These high-profile celebrities’ inaction on estate planning mirrors society as a whole.
According to a 2020 Estate Planning study, only 32% of U.S. adults have estate-planning documents in place. Breaking it down by age ranges: 84% of ages 18-34, 73% of ages 35-54 and 52% of ages 55+ said they do not have a will in place.
Make sure you don’t fall into this category. Estate-planning documents help not only organize financial affairs for surviving spouses and heirs but also simplify the spouse’s decision-making in emergency medical situations. Without a will in place, the surviving spouse may have to undertake legal procedures to gain control over assets that are rightfully theirs.
Estate-planning documents need constant review and adjustment as life events occur. A priority for divorced individuals as soon as their divorce is final is working with an attorney to update their estate plan to reflect their own goals and objectives. In addition, they should make it a priority to update beneficiary designations on any assets that pass outside the estate, including insurance policies and retirement accounts, to prevent these assets from unintentionally passing to an ex-spouse.
4. Ensure adequate insurance protection
A 2015 NerdWallet survey of more than 2,000 married adults found that married women have more concerns about their spouse’s life insurance coverage than men: 49% of women surveyed say their ability to make mortgage payments, save for college tuition and pay bills would be adversely affected by the death of their spouse, compared with 37% of men.
This statistic shows that many families have not considered whether their insurance coverage is adequate for the surviving spouse to maintain the same standard of living. Given that more women survive their spouse than men, lack of adequate life-insurance coverage is an important piece to ensuring a widow can maintain financial independence.
In addition to concerns about coverage amounts, studies also show that women are less likely to know the terms of their spouse’s life insurance policy (57% versus 69% of men) and more likely to be unable to find family financial documents in an emergency (32% versus 21% of men). This can be resolved by keeping important documents in a location where they are easily accessible and known to both spouses.
Insurance planning is an important topic to cover not only before death of a spouse but also afterwards. The surviving spouse should reevaluate their own life and disability insurance coverage to determine whether it reflects their new goals and objectives as a newly single individual, possibly with children to support.
Divorce opens up additional insurance-planning considerations given that it often results in spousal support paid from one ex-spouse to another. If the payor dies, the spousal support payments would likely end, which could cause unintentional negative financial impacts that weren’t considered in the initial divorce negotiation process. It’s important for the recipient spouse to work with financial professionals to consider insurance as a tool to replace spousal support in the event of the payor’s death. This also may help to ensure the policy is owned and beneficiaries are designated in a way that protects the payee’s financial security.
5. Maintain a support system
It is a common belief that marriage increases connections with family, but some scholars feel that marriage actually weakens familial ties and friendships. Research suggests that single individuals have more friends and are more likely to socialize than married individuals and that singles exchange more support with their parents and siblings.
If women are more likely than men to end up alone, then without a support system, their ability to recover from a traumatic event is lessened. Because of this, women should maintain healthy social ties outside of their marriage with family and friends so that they have a network to turn to for emotional support.
Working with an advisor
In addition to maintaining social ties, married women should maintain their engagement with the people who can provide financial and logistical help in cases of loss of spouse or divorce. We’re referring to professional advisors.
Professional advisors, such as financial advisors and attorneys, are trained to be emotionally detached from a situation and often can provide a more levelheaded perspective than family and friends who may be caught up in grief and distress.
The benefit of working with a professional who is emotionally detached may help the affected spouse navigate the unknown waters of divorce and widowhood and help them to figure out how to rebuild their lives.
Unfortunately, it is no secret that women have historically felt disenchanted with professional advisors, especially their financial advisors — in fact 80% of widows and divorcees move on to find a new financial advisor when they are newly financially independent.
While women should take initiative to maintain a support system of professional advisors and ask questions to gain an understanding of their situation, professional advisors also have a duty to serve all clients, independent of gender, in a way that meets their needs and resonates with them.
Wipfli Financial Advisors is committed to helping women become more involved with and in control of their finances, as well as prepared for any of life’s events. We’re proud that 80% of our executive leadership team are women! Compare that with one last statistic: In the top 20 global financial services firms, women made up only 18% of executive committees.
If you have any questions about putting the tips in the article into practice, contact one of our advisors. Or continue reading on: