Have You Thought About Your Spouse's Death?

My mother-in-law and I (Amanda) stood there slack-jawed in disbelief. We were catching up with a family friend at a kids' soccer game when she told us something surprising...

After marrying her husband, she had changed her name on her license but never "got around" to filing the change with the U.S. Social Security Administration.

What did she plan to do for taxes? What about collecting future benefits when her husband died? Did she understand having two names (one on her driver's license and one on her Social Security card) could lead to other complications? It turns out, she didn't understand or even think about any of these events.

She's not alone... We've met several other people who simply don't understand the basics of asset protection.

If you haven't thought about the death of your spouse and the financial aftermath you'll face, it's time you did. It's not an easy or pleasant topic, but it's important to cover.

So today we're highlighting four assets that can be a real headache if your spouse dies and you're unprepared.

Keep in mind, these are just the basics. Having a conversation with an estate planner or financial advisor will help you navigate all the nuances we can't discuss here.

Taxes. The main concern with Social Security (as in the case above) is a matter of name changes. If your tax return name doesn't match the name registered with your Social Security number, the IRS will flag your file. That means you could face anything from audits to heavy penalties.

Alternatively, you could keep your unmarried name to make it easier. There's also the possibility of filing as married, individually, but that does have some drawbacks. It disqualifies you from many tax credits and deductions, including useful ones like the IRA contribution deduction. You can see more on the pros and cons here.

Now we don't know our friend's tax situation, but we urged her to file the name change. It's simple to do. You'll need the official marriage certificate and usually a form of identification.

Likewise, if you choose not to change your name, you'll still need to prove the marriage when you go to file for benefits. The Social Security Administration has a checklist of needed papers and the steps you need to take on their site, right here.

Credit cards. It might surprise you, but many people lose access to their credit cards after the death of their spouse. That's because most credit-card companies don't offer joint accounts. Other people may appear on the account, but they're simply authorized users, not owners. For instance, your spouse might own the account and add you on as a user. And you may not even know that distinction until it's too late.

For credit purposes, it makes sense. The liability for payment rests with the owner only. This means only the owner is legally responsible for paying the bill, regardless of the authorized user's spending.

Unfortunately, this also means that once the credit-card company learns of the owner's death, the account closes and any authorized users lose access. What's more, you can't transfer ownership of credit cards, meaning the surviving spouse can't take it over.

Worse, it can also spell legal trouble. If the owner of a credit card dies and an authorized user continued to use the deceased's card, the police could arrest him for fraud. That's because the estate pays off all debts. The user could simply add up charges that the estate might not pay.

Now, there is the possibility of getting a joint credit card. For liability purposes, both owners are responsible for paying off all charges. Banks typically offer this through their own credit cards. But if you do use traditional cards, be sure each spouse is the owner on their own card.

Bank accounts. This might be the most contentious part of marriage. According to a 2016 survey from TD Bank, one quarter of couples surveyed chose to keep all of their finances in separate accounts.

Now, this offers some benefit, like maintaining financial independence. And there are certainly concerns over things like debt that could make separate finances work.

If you do share a bank account, it's wise to consider a joint account with rights of survivorship. That means if one spouse dies the account will pass to the surviving spouse. But it also means it's not included in your estate. So if you want any of the funds in there to go to someone else upon your death, you won't have that option.

If one of you joined the other's account instead of opening one at the same time together, be sure to check the type of account. You want to make sure you will get full rights to the account upon your spouse's death.

House deeds and mortgages. If you purchase a home together, both names will be on the deed and the mortgage. But here's the thing... if one spouse purchases the home without the other, the asset may be at risk.

You see, if the owner of the house ends up owing money (say for a court settlement), creditors may take a claim on the house. Worst case, the couple could lose it.

But if you add your spouse to the deed, it becomes joint property and therefore provides protection from this kind of loss.

Check with your mortgage company before changing the deed and find out what regulations or penalties are involved. And again, speaking to an estate attorney will provide further guidance about this and other assets.

Now, we could get more into the weeds here and discuss things like probate and setting up trusts... but those are for future essays. So stay tuned for more on those topics and let us know what else you'd like to see by writing to us here: [email protected].

Here's to a fresh start,

Amanda Cuocci & Laura Bente
July 1, 2018