United States
Hong KongCrisis events: divorce, death, job loss and diagnosis
In a crisis the immediate priorities are cash flow, stopping avoidable losses, and deferring every reversible decision. Clients in acute distress should not be making irreversible choices, and the planner's job is often to prevent them.
A domain topic that is also the part of the job that matters most when it arises.
The general shape
- Stabilize cash flow. What is coming in, what must go out, for the next few months.
- Stop avoidable losses - lapsing insurance, missed deadlines, panic selling.
- Identify the genuinely urgent decisions, which are usually very few.
- Defer everything else.
- Return in weeks or months, when the client can actually decide.
Point four is the substance. Most decisions presented as urgent are not, and a client in acute grief or shock is not in a position to make an irreversible one.
No major irreversible decisions in the first months unless there is a deadline. Selling the house, moving cities, giving money away, buying an annuity - each can wait, and each is regretted often enough to be worth a rule.
Death of a spouse
Urgent: cash flow, funeral costs, notifying institutions, obtaining death certificates in quantity, and the estate tax return deadline where portability should be elected. The rest waits.
Not urgent: the house, the investment strategy, restructuring anything. The tax filing status changes, Social Security changes, and required distributions may change - all of which need attention and none of which needs a decision in week one.
Divorce
Property division, spousal and child support, retirement account division by qualified domestic relations order, the marital home, health insurance continuation, and the beneficiary designations that everybody forgets. Beneficiaries too.
The QDRO is the technical point: dividing a qualified plan requires one, and a divorce decree alone does not accomplish it. An IRA is divided by a transfer incident to divorce instead, which is a different mechanism.
Job loss
Health insurance continuation, unemployment benefits, the emergency fund, and what to do with the retirement plan.
The retirement plan is where money is lost. Cashing out produces tax and a penalty and destroys years of compounding, and the rule of 55 may make leaving it in place the better choice for someone over 55.
Serious diagnosis
Insurance coverage and out-of-pocket exposure, disability claims, incapacity documents while capacity remains, and estate documents reviewed. Capacity first.
The capacity point is time sensitive in a way the others are not. Powers of attorney and healthcare directives must be executed while the client still has capacity to execute them, and that window can close.
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Common questions
What should a planner do first in a crisis?
Stabilize cash flow, stop avoidable losses, identify the genuinely urgent decisions - usually very few - and defer everything else until the client can decide properly.
Why defer major decisions?
Because a client in acute grief or shock is not positioned to make irreversible choices. Selling the house, moving, giving money away and buying annuities are all regretted often enough to warrant a rule.
What is urgent after the death of a spouse?
Cash flow, funeral costs, notifying institutions, obtaining death certificates in quantity, and the estate tax return deadline where portability should be elected.
How are retirement accounts divided in divorce?
A qualified plan requires a qualified domestic relations order; a divorce decree alone does not accomplish it. An IRA is divided by a transfer incident to divorce, a different mechanism.
What is time sensitive after a serious diagnosis?
Executing powers of attorney and healthcare directives while the client still has capacity. That window can close, unlike most of the other steps.