Recently, a close friend said to me, “David, my mom is going through a divorce. Her house is for sale and she’s not sure if she should rent a place or buy a new home in this market. What do you think?”
As we sat on the beach, my friend Jennifer (not her real name) and I discussed her mom’s situation, how difficult the divorce process had been, and her worries about her mom’s financial future.
I listened carefully to Jennifer, and then shared with her some heartfelt advice and wisdom, having worked in the past with hundreds of clients in the same situation. What I told her might also be helpful to you (or a loved one) if you’re unsure of what to do with your money after a divorce or the death of a family member.
First, Do Nothing
There are often dozens of financial decisions to be made during a divorce or after a death. You might find yourself asking such questions as: Should I rent or buy? How should I invest the money (assuming there is any)? Should I hire a financial adviser? If so, who? How do I know I can trust them? Should I invest in stocks, bonds, or mutual funds? Should I start a business, or invest in one?
The questions can seem endless, and often lead to knee-jerk emotional decisions. My advice to Jennifer’s mom was to do nothing right away that involves significant financial decisions or commitments.
I went on to explain to Jennifer that making serious financial decisions in the first year after a divorce or death can lead to regret, and more important to financial mistakes that can last a lifetime. Instead, I said, her mom should give herself a solid year in order to clear her head.
Take a Year to Get Clear
Having worked before with divorced people, widows, and widowers, I can tell you from experience that both of these life-changing situations take a while to heal emotionally. It takes time to go through the feelings of losing someone you love either to death or divorce.
The best thing you can do the first year is deal with the denial, anger, pain, and confusion of the death or divorce. It can take months and often years to come to terms with what has happened, and only then can you finally reach a period where you can think straight.
Even the toughest people need to take time to grieve. And often, the tougher you are, the harder it can be and the longer it can take.
Find Your Money, and a Great Attorney
When you go through a divorce or the death of a loved one, the single most important thing you can do financially during the first year is to simply “find the money.”
Jennifer’s mom wasn’t officially divorced yet, and Jennifer was concerned that she wasn’t being treated fairly by her dad when it comes to finances. Jennifer told me, “My Mom thinks he’s hiding money, and she’s not sure what to do.”
“Tell your mom she needs to hire a professional,” I advised. “She needs to get her attorney to help her find someone who does forensic accounting to search for the money.” Forensic accountants spend their careers finding money that people and businesses try to hide.
When you’re starting the process of a divorce, you need to know how big the financial pie truly is before you split up — which is why finding all the money is so critical. If you’re dealing with a death, it’s equally critical to find all of the assets as soon as possible, as you may only have a few months to settle your estate depending on where you live.
Make Your Money Safe
Initially, put the money you come into after a divorce or death somewhere safe and simple. You shouldn’t tie it up in a long-term investment or anything risky.
My recommendation for Jennifer’s mom was to put the money she was to receive from the sale of the family home into a money market account. They’re liquid, safe, and often insured. You can withdraw your money without a penalty. It doesn’t get any safer and simpler than that — an excellent solution for the first year while you’re getting your head and heart together.
I hope my advice helps you or someone you love during a difficult period. Sometimes, the best thing you can do is listen when someone you love is hurting — but some financial advice never hurts, and can often really help.
Live Rich,
David Bach
Thanks for this, David. It’s smart and very sweet.
Does same advice go for winning huge sums of money in the lottery or Vegas?
I have dealt with divorce – it is not easy to get back on track – especially when you have to deal with a reduced standard of living while still sharing the burden of joint accumulated debt – and no divorce settlement. There are other types of “losses” that happen that don’t give you a year to grieve – In my case, having a long term, full time job reduced to part-time when you are over 50- and in my field, there are no perks, no pension, no buyout/severance, no health plan – and competing with a lot of other dental assistants working 2-4 part-time and casual jobs. The other I have had to deal with since the fallout of the 2008 crash – when an adult child has lost their source of income, swallowing their pride and moving back in with a parent, scrambling to pay student loans, trying to maintain dignity working menial casual jobs while juggling job hunting for something sustainable.
Very good advise.Wish I had this advise when i was going through financial issues.
Thank you for this advise, and i love all your books, my family was 150k in debt in 2007, and after using your smart couples fiinish rich, automatic millionaire and start over, finish rich, we are debt free. Only debt we have left is our home mortgage and we pay 15 percent extra every month on that debt. Please advise us when you have your next seminar in NY.
Although this sounds like good advice, and I have heard it before, often there are legal and/or financial considerations that make coming to a decision on how to handle these situations time-limited. In the cas of Jennifer’s mother-can she afford the maintaince of the house(insurance, taxes, higher utility bills, etc)’
If there is an inherited IRA from annonspouse, there are several options, and the decision must be made within one year.
David, thanks for the advice. My 20 yo son was murdered 8 days before his birthday just 6 months ago. Have some insurance $$$ that I need to figure out what to do with. In this economy, I am mortified. Want to do something that will honor him and benefit the family.
How do I get to the next step in life where I can make more money and enjoy
I never thought about it, but the advice to wait a year is excellent.
Thank you, for your counsel. I certainly will share this information with my clients when necessary.
Good advice, David. Wish I could have spoken with you 12 years ago when my husband died.. I lost money by not knowing what I was doing but you live and learn. At least I’m smarter today if not richer. Nell
Great advice David. I think all major decisions should wait as long as possible after a divorce or death.
Good advice . this comes right handy as my sister inlaw’s husband just died.This waiting advice will sure help.
I am going through and divorce this year, lots has changed financially, emotionally, personally, and also having to take care of my children and calm their fears, so a year has helped, but now it’s time to get the divorce completed and move on to a better financial future, what is the next step David?