Tax & Estate Planning
Consider this scenario of a couple: Jane is a successful surgeon who makes good money. Her husband, John, comes from an affluent family and has considerable wealth to his name, but all of it is held in a trust. The couple for many years lives off Jane’s salary because it’s plenty to cover their living expenses. Life goes on, and this setup works well for the couple for some time.
But then Jane and John get divorced, at which time John makes a claim for alimony. The court views it as a valid claim because the couple has been living on Jane’s earnings all those years. To make matters worse, because of the way that John’s trust is titled, that portion of his wealth is essentially untouchable in the divorce proceedings. Jane is caught completely off guard, and she is forced to wonder whether she will have enough wealth to support her vision for retirement while also supporting her children and parents.
Far too often, women find themselves in unfortunate financial situations like this, partly as a result of not having been more prepared or empowered to manage their personal wealth. These situations continue to arise even as women constitute a significant and growing economic force. A recent Boston Consulting Group study found that women control a third of the world’s wealth — about $70 trillion as of 2019 — and are amassing wealth at a faster clip than men, outpacing the growth of the overall global wealth market.1
While all women should expect to be solely responsible for their financial well-being at some point in their lifetimes, many women feel underprepared to manage their financial wellness for a variety of reasons.
A key reason that many women may not feel fully engaged in the management of their finances might be the origin of the relationships that a male/female couple has with their financial professionals.
“When it comes to married women, relationships with the financial advisor, the attorney and the CPA are often initiated by the husband,” says Leslie Geller, wealth strategist at Capital Group. “Women are often outsiders to these already-formed relationships. This can cause women to feel that they aren’t the top priority, or worse yet, that they aren’t even part of the team.”
Division of labor in the household is another potential issue. Although they often handle the day-to-day financial matters, the majority of married women are not similarly involved in the larger, more macro, financial matters such as financial planning and investing. While division of labor is typical of any household, dividing up financial matters this way might jeopardize the couple’s — and more likely the woman’s — financial future.
When women aren’t fully engaged in the larger financial discussions, they run the risk of being isolated from important information and decisions regarding their financial futures. The consequences can be significant, particularly when women find themselves “suddenly single.”
Life events such as a divorce and the sudden death of a spouse can lead to very difficult situations without the right preparation. For example, a widow may face liquidity or cash-flow challenges that can undermine her ability to maintain her current lifestyle, especially if wealth is tied up in private businesses, real estate or other illiquid assets. Family discord, losing out on a fair share of a business, and hefty legal and tax bills can exacerbate these issues.
Simply put, individuals — and especially women — can’t afford not to take control of their wealth and financial resources. Thankfully, there are several ways to address this.
1. Establish and build the necessary relationships. It is critical that you know — and are known by — your financial professional and other professionals involved in the management of your wealth. This may require a deliberate effort to build or even start a relationship with the financial professional. You can begin by joining the meetings and calls that in the past your spouse may have attended alone.
It may even make sense to set up individual time with your financial professional for a one-on-one conversation without your spouse present. This isn’t meant as a time for telling secrets or undercutting your spouse, but rather as a safe environment and opportunity to discuss things from your perspective, ask questions on your own terms and get to know your advisor.
“Ideally, an advisor will build a relationship with both spouses from the beginning,” Geller says. “But if the advisor doesn’t do this proactively, women need to take the initiative and make sure that they are treated as an equal stakeholder in the relationship.”
2. Know the fundamentals and ask the right questions. Before you can feel fully engaged about upcoming decisions, you need to understand the fundamentals of your financial plan and investment strategy. This is important for everyone in an financial professional-client relationship, but especially for individuals who feel marginalized and may be looking for a way to get up to speed.
“Women often find themselves in situations where they need to take action to ensure that their financial rights are protected and their obligations and risks are limited appropriately,” Geller said. “But they need the right information before they can take action, and that requires asking the right questions.”
Sometimes it is hard to know what questions to ask your financial professional. As a starting point, download our list of example questions you can bring up with your financial professional. Note that these questions were written from the perspective of a married woman, but they can be adapted to fit your unique situation.
3. Normalize the financial conversation. Many women may feel a stigma about discussing financial topics, and “money talk” is often viewed as a social taboo. Unfortunately, this may contribute to a woman’s hesitation to take initiative with financial matters. One way to overcome this stigma is by talking about these issues more regularly. Sharing your experiences with people you trust can help you feel more empowered and ready to engage — and your friends and family members will likely benefit from the conversation, too.
Women may underestimate the significant and growing economic force that they represent given the massive amount of wealth that will shift to women over the coming decades. Perhaps this is part of the reason that many women feel underprepared to manage their own finances, especially when thrust into more of a leadership role due to the death of a spouse or a divorce. But most women will end up in control of their own finances at some point in life. Now is the time to begin preparing for this role.
By focusing on building relationships, asking the right questions and normalizing the financial conversation, women can begin to take greater control of their financial futures.
1 Boston Consulting Group. From 2016 to 2019, women gained wealth at a compound annual growth rate (CAGR) of 6.1%, versus 4.1% for men and 4.7% for the overall wealth pool. From 2019 to 2023, women are expected to gain wealth at a CAGR of 7.2%, versus 5.2% for men and 5.8% for the overall wealth market. The global wealth market size is expected to reach $271 trillion by 2023.
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