Coping With the Unexpected
However carefully you plan for the future, unexpected events can interrupt the progress you've been making toward your financial goals, or, in a worst-case scenario, threaten to derail your plans altogether.
While there is no way to predict or prevent what might happen, whether tomorrow or years down the road, there are things you can do now to help protect yourself and the people you love, whatever the future brings. One of the most important is keeping good records.
THE FIRST STEP
If you already have a recordkeeping system in place, or your spouse or partner has set one up, start by reviewing the way it's organized. If some of the information is online and the rest is on paper, you'll want to be sure there is a unified list of all the records and where they are held. This is helpful for your own use and for family members in an emergency.
You should have a record of the passwords for all your individual and joint online accounts and store all print records in a secure but accessible location, arranged in some logical order. You may also want to have back-up toll-free phone numbers for bank, brokerage firm, and mutual fund accounts on hand as well as a complete list of account numbers.
You'll also want to be sure there is an up-to-date record of any debts you're responsible for and to whom the debts are owed. This includes income taxes, all loans, and any personal debts.
JUST THE FACTS
When you put together your financial records, there are a number of things you'll want to know. The most basic is which investments you own and where they are held or recorded. It's similarly valuable to have a complete list of the pensions or other retirement plans you've participated in and who the administrators are. This becomes especially important if you've worked for a number of employers and either could not or did not roll over your plan assets each time you changed jobs.
You should also have a record of your own life, disability, liability, and health insurance coverage as well as information on any insurance your husband or partner has. You'll want to be sure the premiums are up-to-date, especially when you are the beneficiary, and you need to know how and where to file a claim.
You should have a will, a living will, and either a healthcare proxy or a durable power of attorney for heathcare. Your husband or partner should as well. Those documents should be up-to-date, reflecting, for example, any change in marital status or the birth of a child, and everyone involved should know where the official versions of those documents can be found.
If you are getting divorced, are widowed, or are faced with mandatory early retirement, you'll want professional advice sooner rather than later.
Many of the financial decisions you make in these situations, such as which marital assets you want in a divorce or which pension payout to take if you must leave your job, are irrevocable and can't be changed even if you later realize that you've made a mistake. The same is often true when you are dividing property and settling an estate, since it is easy to overlook critical details when you're acting under stress. And you may be pressured to act by someone who has a vested interest in the outcome.
It's essential to work with someone with expertise that matches your needs, since both the law and your emotions can trip you up if you aren't receiving good advice. If you don't already have access to the appropriate professional guidance, you can start your search by asking your current accountant, lawyer, or financial adviser for a reference.
Though it doesn't happen often, you have to be prepared for the possibility that the IRS or your state tax authority will have questions about your tax return. If this happens, detailed and accurate records about your income, deductions, and credits are essential. If you're not sure what to keep, start with the IRS Publications on recordkeeping requirements, especially Publication 552, "Recordkeeping for Individuals." You can download it at the IRS website, www.irs.gov.
The IRS typically acts on its questions within a year but has a period of limitations, generally three years from the filing date, in which it can audit your return. If you hear from the IRS, it's smart to talk to your attorney or accountant before you do anything. He or she can help you make the appropriate response.
When you are asked to provide documents to the IRS, your insurance company, mortgage company, mediation or arbitration panel, or to any other organization as part of resolving a problem or getting a question answered, never send originals. Instead, make copies and, if necessary, have the copies notarized. This way, essential documents won't disappear. Always keep a record of what you send. That helps you build a file to combat recurrent requests for the same information that may be designed to get you to back off your claim or query.