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A Woman's Plan For Independence

March 15, 2003

According to the most recent social security statistics available, from 1996, the median income of unmarried women aged 65 and older is a mere $10,483 per year, and the average age of a widow is 56 years. The national average total of widow compensation from all resources, including insurance, savings and pensions, upon her husband’s death is $12,000. In addition, one quarter of divorced women in the US have an income that puts them at poverty level. These are very grim statistics, and the single most important contributing factor is inadequate preparation throughout one’s lifetime.

Even in today’s world, women earn only $0.76 for every dollar that a man earns. This reduced income results in a lower total compensation over a woman’s lifetime, which detrimentally affects social security benefits upon retirement and company sponsored pension plans. Retirement benefits are often further reduced by the time that women typically take off throughout their child bearing and rearing years. Since women live an average of 8 years longer than men, and they characteristically have significantly less financial assets, this creates many hardships at a time when life should be easier.

All women must take responsibility for their own financial well being, and the earlier this responsibility is undertaken, the better. A widow or divorcee who has not exposed herself to financial issues throughout her lifetime and who must suddenly assume responsibility for bill paying and home maintenance issues will be understandably overwhelmed by the sheer volume of things that she doesn’t understand. On the other hand, a woman who is familiar with her assets and liabilities will make a more comfortable transition to widow or divorcee if necessary.

Women should not only know the location of pertinent financial paperwork, such as regarding insurance, real estate, loans, stocks, bonds, annuities, but women should understand the documents. They should also have an established emergency fund sufficient to cover 3 to 6 months of household expenses. Establishing an emergency fund ensures that a temporary setback such as unemployment, disability, out-of-pocket medical expenses, or the need to repair or replace a major appliance or car, won’t destroy them.

Divorce is emotionally draining and oftentimes a source of financial devastation to women. Young women have an easier recovery, as they may have established careers and a solid educational base. Sadly though many divorced women have been married for many years. They are likely displaced homemakers who haven’t participated in the workforce since before having their children. They are typically unskilled, untrained and unprepared for today’s better paying opportunities. As such, it is advisable for all women to stay familiar with basic business skills and trends.

In the event of divorce, women must take a firm stand for the protection of their own and their children’s financial security. Although state law largely determines property settlements, women should obtain advice from professionals who fully understand all the available options and avenues of securing support for them and their children, including child support payment options, social security and pension benefits entitlement, and even requiring a life insurance policy on the ex-spouse that would replace child support payments in the event that he dies.

Although money is usually tight early in a marriage and when children are young, retirement planning must not suffer. The earlier women start putting money away for their retirement years, the better chance they will have of living comfortably at that time. Whenever available, women should take full advantage of any company sponsored retirement plans, and if this is not possible, IRAs and other options must be considered and implemented. The goal is to start this planning as early in life as possible, and even older women can make contributions that will pay off when they need income later in life.

Another critical step toward maintaining independence is establishing an estate plan. Unfortunately, many women are frightened by the thought of themselves or their spouse becoming incapacitated or passing away, so they refuse to address the reality that most women do in fact end up spending time alone. The act of drafting a Will forces a woman to review her financial situation, including assets and liabilities, which enhances her knowledge of her personal financial situation. Probate, the court supervised settlement of the estate of a deceased person either with or without a will, is often lengthy, expensive and public. Proper planning can ensure that probate is avoided. In addition, if you pass away without a Will leaving a spouse and children, the state will distribute your probate assets ½ to your spouse and ½ to your children. As such, if a husband holding all of the assets in his name alone passed away, his wife would be left with only half of his estate. This is often shocking to a woman who assumes that she will have significantly more resources made available to her when her husband passes away. Furthermore, a Will is much more than just the distribution of assets upon death; it is also a document that can provide a directive as to who will care for minor children, in the event that both parents die.

A complete estate plan also includes a Health Care Proxy, Durable Power of Attorney and a Homestead Declaration. Combined with a Will, these documents ensure that a woman’s desires will be followed in the event that tragedy strikes. They include instructions as to who will make medical and financial decisions when a woman is unable to make them for herself. The Homestead Declaration, once properly recorded, protects a woman’s home from creditors or judgments up to $300,000. For a $10 filing fee, it is cheap insurance that a woman won’t lose her home in the event of legal action against her.

As described above, women are at a disadvantage regarding financial security throughout their lifetime. If they balk at making financial decisions, hard times will likely befall them if they must face life alone. Without proper planning in place, divorce or the death of a spouse can financially devastate a woman. The ticket to independence is proper planning and education. Women must understand their assets and liabilities and have a strategy in place that will maintain their style of living if they are widowed or divorced. Retirement and estate planning are critical factors that can make the difference between tough times being just emotionally draining, or both emotionally and financially draining.

Gina M. Barry, Esquire
Attorney Barry is an associate in the firm of Bacon & Wilson, P.C. and is a member of the firm’s Estate Planning and Elder Law Departments. She possesses extensive experience in the area of sophisticated estate planning issues. Additional matters of expertise include guardianship, conservatorship, planning for long-term care and residential real estate.

by: Gina M. Barry, Esquire

BusinessWest
March 2003