Managing your finances after bereavement: A five-step guide

Losing a spouse or partner brings profound emotional challenges, and often, a wave of unfamiliar responsibilities.

Tasks you once shared or that were handled entirely by your loved one may now fall to you. Among the most overwhelming can be managing your finances.

From organising your new budget and daily expenses to dealing with service providers and understanding entitlements like pensions, the process can feel daunting.

As your life changes, so must your financial plan, and navigating that shift isn’t always easy. A financial planner can help you create a plan that reflects your new circumstances, giving you one less thing to worry about during a difficult time.

Read on to discover five steps to help you manage your finances after the death of a spouse.

1. Use inherited assets or life cover to pay off your mortgage

If you and your late partner held a joint mortgage, it’s important to inform the lender of their passing as soon as possible. With only one income now, keeping up with repayments can understandably become more difficult.

In some cases, you may be able to pay off the remaining mortgage using assets inherited from your partner’s estate. If they had a life insurance policy in place, this could also help settle the outstanding debt.

Indeed, if you have a joint mortgage and both you and your partner are still alive, it’s a good idea to consider life cover specifically designed to clear the mortgage in the event of one partner’s death. Placing this policy in trust can also help avoid Inheritance Tax (IHT) on the payout.

If the estate lacks sufficient funds to repay the mortgage, the responsibility for the remaining balance will fall on you.

2. Assess your income and bills, and create a new budget

When you lose your partner, your household income and expenses are likely to change.

You might notice a drop in income, perhaps due to the loss of a second salary. Conversely, your income may rise through receiving a pension, savings, or other assets your partner left behind.

You may also be entitled to certain spousal allowances, such as an Additional Permitted Subscription (APS), which allows you to inherit your partner’s ISA allowance on top of your own. This means you can continue to benefit from the tax-efficient growth their ISA offered.

While some of your daily expenses might decrease, such as groceries, others, like utility bills, may stay broadly the same.

Whatever your situation, in light of your new circumstances, it’s important to update your budget.

A financial planner can help you assess your situation and financial responsibilities and then build a personalised plan that reflects your current circumstances.

Using cashflow modelling, they can map out your income and expenses – including any outstanding debts left by your partner – while accounting for uncertainties like inflation, market volatility, and life expectancy. This gives you a clearer picture of your trajectory and what changes (if any) you’ll need to make to ensure you achieve your long-term goals.

You can read more about cashflow modelling in our recent guide on the topic.

3. Access your partner’s pension tax-efficiently

In the case of pensions, if your partner had a defined contribution (DC) pension and named you as a beneficiary, you may be able to access their pension through beneficiary drawdown. This lets you draw an income or leave the money invested, depending on your needs.

If your partner died before age 75, any withdrawals you make could be tax-free. If they were 75 or older, you’ll pay income tax at your marginal rate, but the funds remain outside of the estate for IHT purposes. A financial planner can help ensure your pension withdrawals are efficient.

You can find out more about how pensions are taxed in our previous article on the topic.

If they left a Defined Benefit (DB) pension, the amount you will receive is determined by the rules of the pension scheme.

If you and your partner are both still alive, it's important to keep your pension beneficiaries up to date and to write a clear letter of wishes. This ensures that your pension benefits can be accessed efficiently and distributed according to your intentions, offering greater flexibility for your loved ones.

4. Update your insurance policies

If you and your partner shared insurance policies, you will need to revisit your arrangements to ensure you remain properly protected.

If any policies were solely in their name or shared between you, they may no longer be active as they sometimes end automatically upon the policyholder’s death.

This could leave you without coverage for important areas like home, life, or car insurance. To avoid gaps, contact each insurer to confirm whether your current policies are still valid and what adjustments might be needed.

5. Look to the future and update your will

Once you have a handle on your day-to-day finances and your new circumstances, it’s a good idea to start considering your longer-term financial outlook.

For instance, if you've inherited a significant sum, you might find yourself in a position to rethink your retirement timeline or explore investment opportunities that could strengthen your financial security in later life.

It’s also a good time to review your will, ensuring it reflects your new circumstances. Making sure it’s up to date helps protect your beneficiaries and ensures your intentions are clearly documented for the future.

A financial planner can help you take control of your finances after your spouse dies

Losing a partner is one of life’s most difficult transitions, but it’s important to remember you don’t have to navigate it alone. Your loved ones can often provide practical or emotional support, whether that’s helping with everyday tasks or assisting with paperwork.

When it comes to your finances, speaking with a professional can make a real difference. A financial planner can help you understand your new situation and work with you to build a plan that aligns with it.

To find out more about how a financial planner can support you after a bereavement, get in touch.

Email info@mlpwealth.co.uk or call us on 020 8296 1799.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.