One woman’s story is a warning to everyone. Four months after Caroline S. married for the second time, she received a notice from the IRS about back taxes her new husband owed—$1,600 would be taken from her tax refund to make up the difference. Her new husband blamed his ex-wife, saying she hadn’t prepared their returns correctly. A few months later, the IRS put a levy on the couple’s new joint bank account and froze the funds because he was not paying withholding taxes.
As described in the article from Kiplinger, “What Every Woman Needs to Know Before Retiring,” it took two years and $50,000 of Caroline’s money to clear her debt to the IRS. There had been no sign of her second husband’s having financial problems and no reason for her to be concerned about the IRS until there was. Her advice: Keep your eyes wide open and your accounts separate.
Not knowing their household’s financial situation is among the biggest missteps women make. If they find themselves single, through divorce or death, the challenges can be daunting. Women tend to live more years in retirement and earn roughly 84 cents for every dollar men earn. Women represent 55% of all Social Security beneficiaries aged 60 and older, and their percentages rise as the population ages. The highest rate of divorces now involves couples between ages 55 and 64.
However, youth is no guarantee of financial security. One couple was in their mid-forties when the husband died. The wife, a self-proclaimed planner, had wisely addressed estate planning and legal issues when they were relatively young. There were living wills and trusts established, and life insurance policies purchased. The husband had gone to medical school after a successful career in engineering and had $100,000 in outstanding student loans, which were canceled because only his name was on the loans.
Even with all of their planning, this widow had a lot to deal with, managing trusts, bank and investment accounts, credit card transfers and the avalanche of paperwork and digital assets following the death of a spouse.
How to prepare? Have a complete team of advisors, including an experienced estate planning attorney, a financial advisor and an accountant. An estate plan should be integrated with tax planning and household budgets. This checklist can help:
- Have the money conversation before moving any relationship into serious waters. Make sure that you’re on the same page as your partner and get full disclosure of their financial status.
- Don’t leave financial matters for your spouse or partner to handle without being involved at all.
- Familiarize yourself with everything – all property, all accounts, all debts—and be a part of all decisions.
- Fully fund your own 401(k), IRA or other retirement account.
- Consider adding life insurance and long-term health insurance to cover future hardships.
- Make sure wills and other estate planning documents are current and update them periodically.
- Ask your estate planning attorney whether each person in the couple needs to have their own trust.
- Keep individual loans in separate accounts, so the surviving spouse will not be liable for the debt.
- Don’t mingle accounts and funds any more than absolutely necessary to run the household.
- Keep at least one credit card in your name only. An individual credit history can go a long way if you are divorced or widowed.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Kiplinger (Feb. 24, 2024) “What Every Woman Needs to Know Before Retiring”
