Here's how advisors can prevent clients from making poor financial decisions after the death of a spouse

Advisors say clients often make costly financial decisions too quickly after losing a spouse or divorce, despite their best efforts to slow them down. Unfortunately, people who lose a spouse or get divorced feel pressure to “do something” immediately, even when delay would better protect their long‑term finances.

InvestmentNews sat down with Bennett Pardue, a financial advisor with Equitable Advisors, to learn more about the financial moves clients should make - and not make – after a major life event.

InvestmentNews: What are the most common post‑loss mistakes, such as selling homes, cashing out IRAs, or reshaping portfolios too quickly?

Bennett Pardue: After the death or divorce from a long-term spouse, we find that many clients feel an intense urge to regain control, which can lead to rushed and irreversible financial decisions. Common mistakes include selling the family home that might still fit their needs, liquidating pre-tax accounts for "simplicity", or selling investments with heavy built-in taxable gains.

There can also be an urge for a surviving spouse to retire early if they are still working, potentially causing cash flow issues and trouble finding suitable employment after the grieving period. This urgency is often driven more by emotional pressure than by financial necessity, and it’s our job as advisors to slow down the decision-making process to reduce the risk of regret later on. 

InvestmentNews: Which financial decisions truly require immediate action versus those that should be intentionally delayed? 

Pardue: Immediate priorities typically involve ensuring liquidity, paying routine bills, maintaining insurance coverage, and addressing time sensitive items such as required minimum distributions, survivor benefit elections, or payroll changes after divorce. In a death situation, life insurance proceeds can offer almost immediate liquidity without tax consequences, and in most scenarios, should not be postponed.

Beyond these essentials, most large decisions can and should be delayed. Real estate transactions, selling of a business, reallocating long-term investments, turning on social security or pensions, moving in with adult children, and even selling a high maintenance asset like a boat or a car should all be put on the back burner initially. Intentional delay allows clients and their advisors to evaluate options with clarity rather than with urgency. 

InvestmentNews: What are the tax and income consequences advisors most often help clients avoid during this period?

Pardue: Premature distributions from retirement accounts are the number one offender. Spousal beneficiaries often have no idea that they can inherit retirement accounts by rolling the assets into accounts in their own name, treating them as their own, and avoiding heavy tax loads and possible early‑withdrawal penalties. The same is true in a divorce. The spouse receiving retirement assets is not obligated to take the distribution as cash, although the IRS allows for a one‑time, penalty‑free withdrawal with a QDRO, and can instead roll the distribution into an account in their own name and treat it as their own.

In the case of an elderly couple where one spouse has died and there are investments with significant gains, a major mistake is selling those investments when the intent would have been for the couple’s children to inherit the assets. This results in realizing taxable gains immediately and permanently foregoing the step-up in basis advantage upon the death of the second spouse. Step-up basis is one of the most generous carve outs in the tax code and ignoring it can significantly reduce the ultimate inheritance to the surviving family members. 

InvestmentNews: How do advisors create structured “pause periods” to help surviving spouses or newly-single clients stabilize their financial lives before making major changes?

Pardue: We often frame a pause period as a formal part of the plan, so it is not viewed as inaction. During this time, regular, structured meetings that focus on immediate logistics, such as confirming cash flow, account retitling, beneficiary confirmations, and assisting with asset inventory, help the client feel a sense of progress without the pressure to make large, irreversible decisions.

We also use this time as an opportunity for education, walking the client through the roadmap of what is to come and setting expectations around what is needed and when, very early in the process. This period can help clients stabilize emotionally and financially, positioning them to make clear and thoughtful decisions when the various pause periods end.