Protect your finances when suddenly single

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(MoneyWatch) I've always said that people should never make financial decisions based on emotions, or during an emotional time. The loss of a spouse or partner due to death or divorce can be a time of devastating emotions but also a time when important financial decisions need to be made.

Here are a few of the initial steps  you need to take to protect your personal finances.

Re-register Financial Accounts: When you own accounts jointly, the registration will have to be changed to sole ownership. This is not as simple as re-titling the account; most financial institutions require opening a new account owned individually and then journalling or transferring over the assets from the jointly owned account. When this is due to death, a copy of the death certificate of the deceased joint owner is required for each joint account that is to be transferred into an individual account.

In a divorce, changing ownership also requires you to divide assets in joint accounts and this is typically laid out in a divorce agreement or a court order. Signatures and guarantees are also typically required by financial institutions for these types of account transfers. Before transferring assets in a divorce, make sure to document the unrealized gains for each position and who would incur the tax burden if it is later sold. This is when it's advised to bring a financial or tax professional into the process before significant tax burdens are created.

Create Income and Expense Forecast: When you become a widow or get divorced, you might experience a drop in income and an increase in expenses. For this reason, it is very important to create a forecast of income and expenses and a preliminary budget to plan accordingly. Start by listing your sources of income from earnings, pensions, Social Security, etc. Next list your expenses by each line item, grouping by essential expenses (housing, utilities, transportation, food, insurance, etc.) and discretionary expenses (clothing, dinners out, vacations, etc.) Make a separate list of debts and debt payments, and list this by amounts owed from highest interest rate to lowest.

If your income is not enough to cover your total expenses, then match your income to cover your essential expenses, then debt payments and then apply any left over to discretionary expenses. This process will help to define how much you might need to trim discretionary expenses to make ends meet.

Monitor Credit Reports: When you are suddenly single your individual credit is now one of your most valuable assets, so you should be aware of what you have and protect it. As soon as possible, request a copy of your credit report and take a careful inventory of all of the accounts that are open an in your name and those that are held jointly with the former spouse. You'll want to contact all three credit bureaus to inform then that your spouse has passed away and to alert them to prevent others from fraudulently establishing credit in the name of the departed.

A surviving spouse is responsible for paying a credit card bill held jointly with the deceased spouse. Often you are also responsible to pay for accounts held individually by the deceased spouse as well. You may be able to speak with the credit card company to inform them about the death and negotiate a favorable debt settlement.

Newly divorced individuals should close joint credit accounts and open individually owned accounts so that their ex-spouse cannot affect their credit rating.

Check back in a few days when I'll discuss some of the financial decisions that need to be considered when you become suddenly single.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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