Pitfalls when advising blended families

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Managing family finances is difficult to begin with, but when you add in stepfamilies and half siblings, family planning becomes increasingly complicated.

As a mother and daughter/stepmother and stepsister, we know firsthand the challenges and important questions to ask when planning for the future, as well as helping manage families' current financials.

Over 50% of U.S. families are remarried or re-coupled after a divorce and at least 13% of all parents in the U.S. are also stepparents, according to the most recent Census Bureau data. It is expected that the “blended family,” a family that includes children from a previous marriage, will become the predominant family structure in the United States in the near future.

Blended families have to do financial planning a little differently. There are all the same things to consider with a few more caveats and potential pitfalls along the way.

"Watching my entire hard-earned salary go to my husband’s ex-wife upset me more than I expected."

Before marrying my husband, who has two children from a first marriage, I (Jane) knew approximately how much he was paying in alimony. But when I saw his monthly payments, which equaled my monthly salary, getting taken out of our newly established joint checking account each month, it gave me pause to say the least.

It may have illustrated how much he was paying or how little I was making at the time, but watching my entire hard-earned salary go to my husband’s ex-wife upset me more than I expected. Even financial advisers can be taken a bit by surprise.

So when a blended or about-to-be blended family comes to us for advice, we outline the practicalities of what to do — as well as the emotional surprises that may await them. Here are the key things to know as a blended family:

Know Your Existing Financial Obligations
What are his — or her — existing financial obligations to family? Are you aware of all the alimony, child support or responsibility for college tuition payments? Know what you each owe individually so there are no unpleasant surprises later.

Does your insurance policy cover both children and stepchildren? If your children are in grade school, does your divorce agreement obligate you pay for college tuition? You may have financial obligations that aren’t there now but may kick in when your children or stepchildren reach a certain age. Make sure all of these are mapped out ahead of you.

Draft Pre-Nuptial Agreements
Pre-nuptial agreements have been given a bad rap by many people. In their mind, a pre-nup is a couple admitting failure before even starting the marriage. However, for a blended family, an agreement such as this from both sides can be extremely beneficial. Both spouses entering into the new marriage should consider pre-nuptial agreements that make it clear who owns what assets and what their intentions and responsibilities are for current payments as well as future bequests. This protects current and potential future assets for those that might need them.

Defining clear lines help blended families have a clear understanding of all assets from both sides. While it’s unpleasant to think about, divorce rates for second marriages are higher than for first marriages. Protect what you’ve got.

Execute Estate Planning For Now And Later
When doing estate planning, determine what is fair. In our family, my husband has two children from his first marriage and we have one child of our own, Caroline. After much discussion, we decided that if together we were worth three dollars, fifty cents each would go to the older children and two dollars to our child. The logic was that their mother would leave all her assets to the two older children and not to our child, so that arrangement made it equitable.

Each family is different and while there is no formula to follow, it is important to have the discussion and prepare an estate plan and include trusts that will be fair to all the stakeholders.

And don’t just estate plan for the people in your life now, plan for the people in the future. Did you know you can set aside a trust for grandchildren yet to be born? Make some allowances for things like that. Enable family members you trust to provide for future generations. Think ahead.

Blending families can be stressful enough. Keeping these three points in mind will help you navigate the sometimes choppy waters of blended family finance.

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