Big Financial Mistakes You Should Never Make After Losing a Spouse

The days and weeks after the loss of a spouse can be overwhelming, filled with grief, confusion, and uncertainty. It's also a time when it's easy to make mistakes that have long-lasting impacts, including falling prey to scams, particularly if much of a couple's financial planning was handled by the deceased spouse. 

To help navigate such a stressful and challenging life chapter, we asked financial planners and money management experts to identify some of the biggest mistakes widows and widowers make in the aftermath of a spouse's passing.

There's often one partner in a relationship who manages the finances. All too often, the spouse who's not involved knows little about household assets, income, and liabilities, says Neel Shah, estate planning attorney at Shah & Associates. "What happens when the spouse who's managing the finances is unable to do so due to a death or disability? One of the biggest mistakes I see widows and widowers suffer from is not taking an interest in the household finances before they become widows or widowers. To the extent that you can have a high-level understanding of your personal finances, you can avoid most of the mistakes made when the 'financial' spouse does pass away or become incapacitated."

A widow or widower may not be aware of all of the income sources they're entitled to and may overlook sources of income. "When my late husband passed away, I was reading through his emails and I inadvertently discovered an employer-sponsored health savings account that he had not designated a beneficiary for," financial coach Anita Wright says. 

"I would have lost about $1,800 if I had not discovered it. Both spouses should be aware of all entities that each one has and beneficiaries should always be current."

A surviving spouse, even if they are not old enough to collect Social Security benefits, should check in with the Social Security Administration as soon as they can after the death of their partner. "There is a lump-sum survivor benefit of $255 that is available but has to be claimed within two years of the spouse passing, or you lose it," Wright says. 

"Also, there are slightly different rules for widows and widowers to be able to start collecting Social Security benefits earlier than the average person. Benefits become available at age 60 for the surviving spouse, and there are options that he or she need to look at so that the best-informed decision can be made regarding Social Security benefits."

A surviving partner may pursue new interests or hobbies, changes that could mean adapting or altering financial plans put in place as a couple. "If a spouse was taking care of a husband or wife who was ill, they may not have been able to do certain things for a period of time. Now with more time, freedom, and flexibility, you may have different intentions with your finances, such as traveling or helping other family members," Shah says. 

If your finances were set up in a certain way but your goals and desires have changed, it may be time to take a look at your plan and see if you're still on track. Too many people simply leave their financial plan in place without regard for changed circumstances.

Women in particular tend to fall prey to this problem. "They start worrying about the kids' inheritance and well-being even though they have just been dealt a difficult situation and are now responsible for all of the assets," says Dennis Doble, a CFP and co-founder of Doble LeBranti Financial Group. 

"Rather than going through a well-thought-out income plan for their own future well-being, they feel secure as they now see bigger numbers in their own accounts with one, rather than two, people to take care of long-term. So they start giving things away, putting their own financial independence success at risk." 

It may seem easier to put everything in the name of the surviving partner, but be careful how you do it. If money was left in an IRA with the surviving partner named as the beneficiary, it may be tempting to take that money and transfer it for simplicity's sake. This could be a mistake if you're under the age of 59.5: If you end up needing the money to help pay living expenses, there will be steep early withdrawal penalties. 

"If the surviving spouse starts withdrawing $50,000 a year to pay for the mortgage, there will be taxes and early withdrawal penalties of 10% due," Doble says. A wiser course is to establish an IRA-Beneficiary Designated Account for the money that avoids a 10% penalty on early withdrawals. 

Acting on finance out of emotion can have devastating consequences, says Jacob Dayan, CEO and co-founder of Community Tax. Take your time. "Do not sell investments you do not fully understand," Dayan says. “Save major decisions for later.” 

Though it may be tempting to immediately cancel credit card accounts, this can backfire. "It can harm your credit scores and reduce credit lines available to you," says John Davis of ScoreSense. "To maintain your total available credit and retain your credit history, ask your lender about removing your spouse from the joint cardholder account rather than opening a new single cardholder account in your name." 

A surviving partner may not be aware of all debts, which can lead to defaults or late payment fees. "By notifying all three credit bureaus of the death you will become aware of remaining debts in his or her name," Davis says. "To notify the bureaus, send a letter with a copy of the death notice to each." 

One of the easiest mistakes to make is underestimating how much debt a spouse has. "Unless you were very, very open about finances in your marriage, you may be unprepared for the burden you're taking on," says Jake Hill, CEO of DebtHammer. 

"In some cases, spouses won't be legally obligated to account for the debt. But if the estate transfers the debt to the spouse, or if you cosigned any of their loans, you will unfortunately be held responsible." It's a good idea to talk to a debt counselor once you've had a chance to grieve. 

If your spouse was employed, reach out to their workplace to discuss benefits and outstanding payments you may be owed. "Ask his or her employer about any payments that may be due for unused vacation or sick leave," says Aviva Pinto, managing director of Wealthspire Advisors. 

"If the employer provided life, health, or accident insurance, you may be entitled to receive payments under these policies. If your spouse belonged to a union or professional organization, ask about death benefits for members. If the death was work-related, you may be entitled to workers' compensation benefits." 

It's not just your spouse's most recent employer you'll want to get in touch with. "Contact all past employers to determine whether you're entitled to any payments from a pension plan," Pinto says. "If your spouse was already retired and receiving a pension, check with the employer about whether you will continue to receive a pension payment, and the amount." 

The first year following a divorce is an extremely emotional time and can prompt drastic financial decisions. "In the months following the death, many widows will sell their home and move to a different part of the country, only to be  filled with regret," says Brian Carney, CFP and the co-founder of RiversEdge Advisors. It's best to wait six to 12 months. "Most often emotions will subside after this time period and a more strategic process can be established to help make the correct decision." 

There are tons of con artists who target widows and widowers. Check the credentials of anyone reaching out after a death. "Blind faith in strangers can cause a lot of destruction. In most situations, you're better  off erring on the side of caution and consulting with someone who you reached out to independently after thoroughly researching, rather than working with a professional who has reached out to you," says Nishank Khanna, CFO of Clarify Capital. 

It may seem like a will is set in stone, but it's not always true. "In some states, a spouse can file with the court a petition to claim an elective share, meaning that whatever the will states, the spouse can override that and claim an amount specified by state statute," says Dan Stickel, CEO of EstateExec. "These rules vary … it may not be to your advantage to make such a claim, but if you feel that the will is treating you unfairly, you should at least look into this." 

Taking this action is not the same as filing a lawsuit, but is merely part of a normal estate settlement process. "In Florida, for example, a spouse is entitled to 30% of the estate. In New York, it's $50,000 or one-third of the net estate, whichever is greater." 

Criminals sometimes send "overdue notices" for fake bills that a surviving spouse may pay without investigation. "You should check into any bills, and ask for some kind of proof or records that show your spouse actually incurred the listed debt," Stickel says. 

"Even if it turns out to be a legitimate debt, that statute of limitations may have expired and the debt may no longer be collectible, so be careful not to make any payments or even agree in writing that the debt is valid, because doing so can restart the clock from the beginning."  Investigate local statute-of-limitations rules for debts of deceased spouses. 

Talk to an accredited financial adviser first about buying and selling investments. "Receiving advice from family and friends might be well-intentioned, but nothing beats the expertise and know-how of a planner," says Paul Sundin, CPA and tax strategist for Emparion. "Find a professional one who is not only empathetic and respectful but specializes and has experience dealing with widows' and widowers' situations."

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