Independent Women

Overview

It goes without saying that men and women are different. It is probably less obvious that the financial needs of independent women are different from the needs of married couples. An independent woman is single, perhaps divorced or widowed. A significant part of our practice is caring for the needs of the independent woman.


Within this practice are three main disciplines:

  • Managing Cash Flow
  • Conservative Investing
  • Effective Estate Planning

Managing Cash Flow
From a cash flow standpoint, we frequently find that in many cases, the husband of the widow or divorcee handled the finances. This may have ranged from his handling the investments, 401(k) or IRAs or taxes, to total control of the checkbook. In addition, typically a newly independent woman (divorced or widowed) has to reset her cash flow to reflect an inherited IRA or 401(k). Many times, there’s a reduction in pension income (where the woman gets either a QDRO or a survivor pension) and social security income. A very important step is to get an effective cash flow plan that covers all the necessities and hopefully provides the independent woman with discretionary funds, all while meeting the important goal of preserving capital and the income stream.

Conservative Investing
Because many independent women rely on their ‘nest egg’ as a source of income and security, the asset allocation for an independent woman’s nest egg needs to have both an aspect of income and growth. In others words, we need to be conservative, but not too conservative. We tend to see the errors on both extremes: some women put all of their money in the bank or CDs, and the return is usually not enough to meet spending needs, much less beat inflation, and the woman inevitably starts using up principal. The other extreme tends to be when the husband invested the funds, typically in some more aggressive investments, or maybe concentrated in his employer’s stock. Being too conservative causes a slow demise to inflation while being too aggressive subjects the independent woman to excessive risk. A balanced portfolio is the answer.

Effective Estate Planning
As nurturers of the family, another primary concern of women is being sure that assets not used during her lifetime go to the correct family members. It may mean controlling funds provided for inheritances so the beneficiaries don’t squander the money. Frequently a large portion of an independent woman’s net worth is her IRAs. IRAs left to a beneficiary may be stretched over the beneficiary’s lifetime, but unless this is restricted via a trust, the beneficiary can take the money at will. We’ve seen cases where the mother was frugal and saved, leaving a large balance in her IRA to her children as an inheritance, only to have the son and daughter in-law withdraw the whole balance, pay a large amount of taxes, and spend all the money. Charity is another issue, and we frequently advise using techniques that allow an independent woman to make charitable gifts, but retain an income flow for her lifetime. Estate planning is a very important planning tool.

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Frequently Asked Questions

How does LJPR work with Independent women?
We always use a team approach, with one person assigned to our client to be the key person in the relationship. In today’s complex world, you need a variety of specialists, as well as your general practitioner. The analogy is to your doctor: you have your main doctor take care of you, and he or she calls in specialists if you need them. At LJPR, most of the specialists are on staff: lawyers, CPAs, CFPs, and CFAs.
What’s the first step for a widow?
Don’t go too fast. Many times we see the widow, still in grief, trying to sell the house, move investments, give money to the kids, and so on. We suggest one step at a time, gather the assets, move away from anything too aggressive, get titles on properties, accounts and IRAs correct, and then, at a pace adaptable to the widow, move toward a cohesive plan. It may take two months, it may take two years. Small consistent progress is better than a flurry of ill-thought out activity.
I just got divorced. I want to put my daughter’ name on everything in case something happens to me. Good idea?
Not necessarily. A frequent form of titling property in multiple names is to use Joint Tenancy with Rights of Survivorship (JTWROS). This is a good technique for married couples who want to co-own property and have the survivor own all of the property. However, there are a few problems naming a non-spouse as a joint tenant. First, if you have more than one child (and like more than one), then naming one as JTWROS will leave that money to the joint tenant. If that child is in a coma, or in the middle of a divorce, or a lawsuit, those assets could be lost entirely. Joint tenancy overrides a Will. The second problem is that joint tenancy is an actual co-ownership. The child named on the account actually owns it with you. So if your daughter fails to pay her taxes, your account could be seized by the IRS. If you daughter gets a divorce, the assets in the joint account might be counted in her property settlement. A better way to pass on control is through the use of a revocable living trust or using a Pay on Death (‘POD’) or Transfer on Death (‘TOD’) designation.

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