Your financial plan should provide you with as much protection as possible from the four Ds: death, divorce, disability and disaster.
While you can’t totally protect yourself from any of these events, you should at least have a good plan in place in case something does happen.
Death is the only D that can’t be avoided, so it’s the easiest to plan for. Once you’re gone, your will is the only legal document that can ensure your wishes are carried out. A power of attorney allows someone to look after your finances while you’re alive but that document becomes void instantly upon your death.
Every adult should have a will to ensure their assets are dealt with according to their wishes. Your will should be reviewed regularly to make sure it accurately reflects your wishes. We set up our will based on how we feel at the time it’s written. But as time goes on, we may change our minds on how our assets are to be dealt with once we’re gone.
If your will hasn’t been updated, then your wishes may not be met. No matter what you’ve told your family, they can only legally act according to your will.
Divorce is very difficult to plan for – no one goes into a marriage thinking they’ll get divorced. However, there are ways to protect yourself. If you get an inheritance and leave that money invested in your own name, it won’t form part of your net family property in the event of a divorce. However, if you invest that money jointly with your spouse, or use it to pay down family debt or invest in any family property, that money is now considered part of your net family property and is subject to division in the event of a divorce.
The same thing can happen if your family gifts you money. A pure gift forms part of your net family property statement. However, if it’s given as a documented loan, then it will likely not form part of your net family property.
Disability can be planned for but is often overlooked. In the event of a disability, you need access to funds to help cover expenses and make up for any revenue you’ve lost. You can do this with a personal disability policy or with group coverage from an employer.
If you have group coverage, be sure to pay the premiums with after-tax dollars so any disability benefit you receive is tax-free. As you build up your assets and pay down your debts, you may have the financial resources to protect yourself in the event of a disability and insurance might not be required.
Disaster is the hardest D to manage since you never know what could happen or when. To protect yourself, ensure you’re building up your assets and paying down your debt. Create an emergency fund or have access to a line of credit to provide the resources needed to deal with a disaster.
As always, seek professional help when dealing with any of the four Ds. It could be a once-in-a-lifetime event for you but professional consultants and planners help their clients deal with these issues on a regular basis. There’s no need to go it alone.
Bill Green is an hourly financial and estate planner, public speaker and author of The Success Tax Shuffle. Bill has over 25 years of experience in the financial services industry.
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