By Heidi Clute
Our first article looked at the major changes women can face, from a booming business to the death of a spouse. Here are specific transitions that bring additional financial challenges, and how to cope.
Business ownership. Most small-business owners regard their enterprise as their greatest personal asset and primary source of family income. So protecting your company and planning for your future financial security are often the same goal. When the time comes to sell it, the experience can be tough. Selling your business can also stimulate a strong sense of loss and grief.
If you’re a woman facing an impending sale, you’re probably not alone: Women own more than 9.1 million firms in the U.S., employing nearly 7.9 million people and generating $1.4 trillion in annual sales as of last year, according to the National Association of Women Business Owners.
Strategies you can take to help safeguard your finances during rapid growth or after the sale of your business:
* Don’t mix rapid growth and inexperience. That often means not gifting a rapidly growing business to your inexperienced adult children. Uncontrolled growth in the wrong hands can quickly dissipate corporate assets — and that part of your nest egg that hinges on the business.
* Protect your income after the sale. If something happens to the buyer, your payments can end abruptly. Request that duplicate notices be sent to you when premium payments are made on key-man life and disability insurance (which covers a business’s indispensable personnel).
Divorce. Whether you are considering separation or are already in or just finished divorce proceedings, the decisions you make now will affect the rest of your life.
Dividing wealth in a divorce is never easy, especially with increasingly complex investment options. Splitting a portfolio the wrong way can trigger vastly unequal tax consequences. You can, for instance, make a mess of portioning assets if you overlook the qualified domestic relations orders (QDRO) form, which facilitates access to a former spouse’s otherwise-protected retirement plan savings.
In a divorce, you might need help navigating the economic aspects, as opposed to the legal issues that lawyers handle. In addition to an attorney, you may want to consult a certified divorce financial analyst (CDFA), a specialist who advises both you and your lawyer on the financial aspects of your settlement. Check with the Association of Divorce Planners for a CDFA in your area.
Strategies designed to help safeguard your finances:
* A portfolio split down the middle might not be financially equal, especially when the tax consequences of various assets aren’t evaluated prior to determining splits.
* Many divorcing women want to keep their homes for emotional reasons and to provide stability for the kids. Maintaining a house involves money matters such as mortgage, taxes and upkeep expenses. It is a large illiquid asset whose value you can’t quickly tap.
* Splitting retirement plans involves tricky tax rules, so prepare the proper paperwork and talk to qualified advisors. For example, most plans require submitting a QDRO to the plan administrator before the plan can pay any portion of your ex’s benefits to you.
* Update your will, trusts and beneficiary designations on retirement plans and insurance policies so your ex or some other unintended beneficiary doesn’t unintentionally inherit a windfall.
Illness. If you or a family member were recently diagnosed with a serious sickness, you face many new challenges beyond the emotional loss of the health you always enjoyed. To protect finances before and after a diagnosis:
* Establish a power of attorney so someone can handle your financial affairs as needed.
* Choose your health-care proxy, someone you trust and can empower to authorize or decline your medical procedures if you can no longer make those decisions.
* Consider establishing a trust so your assets will eventually pass to your heirs as you intend without the stress, expense and delay of probate.
Remarriage. Second marriages and blended families bring the financial challenge of providing for each other and for multiple — sometimes completely new — beneficiaries. To safeguard your finances:
* Update wills, trusts and beneficiary designations on retirement plans and insurance, so both of you, your children and your partner’s children are provided for.
* Discuss your finances. Know how much debt your partner carries and its effect on your option to share or combine assets.
Grief and loss. Grief after the death of a loved one is readily acknowledged; many women are surprised at similar feelings from the loss of health, the end of a marriage or the sale of a business. In such an emotional moment:
* Don’t let grief drive your decisions. Viewing inherited or insurance money as a poor substitute for your lost loved one can lead to guilt, foolish spending or simply giving away what was intended to provide for your financial security.
* Avoid making uninformed decisions. Not looking at your finances can cause unintended bad outcomes, missed opportunities and/or tax problems.
Heidi Clute, CFP, is the majority owner of Clute Wealth Management in South Burlington, Vt., and Plattsburgh, N.Y., an independent firm that provides strategic financial and investment planning for individuals and small businesses in the Champlain Valley region of New York and Vermont.