Anytime there is a drastic change in your life, good or bad, things can feel like they are coming at you a mile a minute. When you are in the thick of an event like this, you are just trying to get through each minute the best you can. Whether it is accepting a new person into your life through a new relationship, birth, adoption, marriage or partnership; or having someone exit your life through the dissolution of a relationship or a death, the trauma of that event can cause disruption. In your return to some sense of normalcy, you may not be thinking about your money and what steps you need to take to make adjustments to your financial affairs. The lack of paying attention to these things can end up creating a mess for you and your loved ones later on. Here are some tips to make sure you don’t move forward without addressing these important issues.
Review all financial and legal documents. This includes advanced directives, power of attorney documents, a will and any beneficiary designations on life insurance, IRA’s, annuities, or retirement plans. Is there an ex-spouse you need to remove? Are you required to keep them on per a divorce decree? Is there a new person that should be added or included? If your children are of legal age, perhaps they don’t need a guardian as indicated in an earlier version of your will. If they are still young, have you indicated a primary and alternative guardian for their care in the event you are not able to? What about the financial resources for those guardians? Perhaps you have several versions of a will, due to previous changing circumstances. Making sure the old copies are destroyed and replaced with a current will is critical to a smooth probate process for your loved ones.
And then, there are those financial accounts. Do you have joint accounts with a deceased loved one? If so, removing their name may feel like a gut punch, but not removing them may prevent you from obtaining funds when needed. Many financial institutions will not let you set up automatic deposits into a joint account without the signatures of both account holders. This can be problematic if one is deceased. In addition, with the increase of identity theft, not removing them can leave you and their identity vulnerable. This includes investment accounts, savings, and checking accounts.
Doing a thorough financial review of your credit card statements, automatic payments, and insurance is also important coming out of a big change. Are there things you can eliminate to free up much needed cash? Are there new expenses you haven’t considered that have to be accounted for? Developing a new spending plan with all the new considerations can help you as you settle into this new way of life.
Finally, there are taxes. In a survey conducted by the Harris Poll in October of 2020, the findings indicated that 37% of taxpayers were not familiar with the W-4, including 11% who said they never have heard of it. A W-4 indicates how to calculate the amount of withholdings you are taking from your pay to go towards income tax. Many people never think about changing this after a big change in their lives. A divorce, for example, can mean you need to withhold more since you may be filing single rather than joint. Having your child age out might affect your taxes as well. The Tax Cuts and Jobs Act of 2017 indicated that you could claim an exemption for having dependents, but that has since been removed. The IRS now has credits that have been increased to account for this change. But these credits are subject to phase out limitations in some cases, so not everyone is eligible to take them. And to complicate matters more, the new W-4 form is different from years past, so discussing all of this with your tax preparer is a good move.
Positive or negative, life changes often take up space in our day to day lives and it’s easy to forget financial decisions while getting adjusted to your new normal. This can be a very emotional time in your life. This is why it’s beneficial to talk with a financial professional who has your best interest in mind and can look at the financial facts to help you make the best decision for your finances.