A second marriage can be the start of a beautiful journey—but merging the finances of two individual households can be tricky. Aligning finances is critical for any marriage but can be especially challenging for a blended family, or a family in which at least one spouse brings children from a previous relationship. While it's a joy to have more people to love and share your life with, it also means more people to care for financially.
This is why blended family finances are often cited as one of the
Challenges of blended family finances
Perhaps your ex-spouse handled all things finance while you took a back seat. Or, maybe it was the other way around. Don't assume the handling of your household finances will operate the same way they did in your previous relationship—make sure your expectations match your partner's expectations.
Here are a few common issues that can pop up when merging household finances:
- Not discussing estate planning. One of the most challenging (and uncomfortable) aspects of blended family finances is updating
estate planning documentation—wills, powers of attorney, advanced care directives and trusts. If you avoid updating these important documents, you run the risk of excluding your new spouse or stepchildren from asset inheritance if the worst were to happen.
- Hiding debt or income. There are quite a few marriages where at least one spouse hides personal debts, delinquencies, or even income and assets. About
30% of U.S. coupleshave experienced some form of financial infidelity; hiding debts or accounts is the top culprit. Covering up financial obligations or income can lead to mistrust in the relationship.
- Withholding spending and saving habits. Burying your financial past is one thing. Keeping your current spending habits from your spouse can be equally damaging, especially if they don't match up well with your partner's own financial philosophy. Be sure you're both clear on how you like to spend and save to avoid confusion and conflict.
4 steps to achieve strong blended family finances
So, how do you make sure you're on the right track? The four basic steps to successfully blending family finances are to have transparent conversations, create a new financial system, build a blended family budget and plan for the long-term.
1. Engage in open, transparent conversations
Start by sharing your debts and financial obligations, including any child support and alimony. Be open about your assets and income. Allow your partner to share the same information. Then share your spending habits. How have you typically spent and managed money in the past?
Keep in mind that it's never too early to bring financial experts into the conversation. Working with a tax professional will help you understand how your new family might impact your annual tax filing status. For example, what might happen to your return when you have more dependents? In addition to working with a tax professional, a financial advisor can help you and your partner navigate these important conversations that ultimately bring your finances together.
2. Create a new system
Forcing an old financial system onto a new relationship is difficult to do. Instead, work together to create a new system that incorporates the financial values you both hold dear. For example:
- Will you have separate or joint accounts?
- How might you tackle debt that only one spouse might carry?
- What about expenses for each other's children and extended family members?
- Would you like to save for your children's
college education?Their wedding?
All of these items and more are handled differently by different families—and every person has their own opinion. Align with your spouse on how you'd like to handle common household spending and saving decisions, so you're not surprised later. What matters most is that you and your partner are on the same page.
3. Build a blended family budget
A strong blended family
Next, discuss an accountability plan. A few questions to consider:
- Who will take the lead in making sure the household stays on target?
- How often will you come together to look at and discuss your finances?
- What is the game plan if one (or both) of you veer off track?
You'll be happy you took the time to build a plan and checkpoints that will hold you both accountable down the line.
4. Ensure loved ones are taken care of long-term
How do you divide assets in a blended family? There are ways to avoid blended family inheritance issues and make sure your spouse, children and stepchildren are well taken care of. Consider the below documents and policies for well-rounded estate preservation:
- Prenuptial or financial agreements. These contracts specify how assets are managed or split up if certain situations arise. For example, a financial agreement can detail how you and your partner agree to handle adult children's expenses, like a wedding, first home, etc.
- Power of attorney. This document identifies who will handle your finances if you become incapacitated. You can assign this role to your spouse, children or anyone else you trust deeply to execute your finances on your behalf.
- Final will. Blended family
will considerationsinclude how you want your assets divvied out amongst your spouse, children and stepchildren once you pass away. If you have young children, a will also appoints a guardian. A probate court usually executes a will and the process for receiving assets can be lengthy.
- Trust. A
trustdocuments how you want your assets allocated, similar to a will. A trust differs from the will in that you assign a trustee to execute your trust when you pass away. This process usually avoids court, and your loved ones can have what they need in a more timely fashion.
- Life insurance. A
life insurance policyoffers an immediate payout to your beneficiaries upon your passing. There are situations where the children are beneficiaries in your life insurance policy, while the spouse receives the assets outlined in the will or trust.
- Social Security benefits. These benefits may be available to your children (under age 18), spouse and ex-spouse if you pass away. Likewise, you may qualify for
Social Security benefitsif your ex-spouse passes away.
Planning protects both family and finances
With all the joys of a fresh start, blended family finances don't have to be a headache. Being willing to have vulnerable conversations and lay everything on the table is a great start. Then, it's a matter of creating a financial plan that works for your new family structure.
Financial advisors can help establish this plan effectively and efficiently. Not only are they knowledgeable, but they can present an objective point of view and guide conversations that might otherwise be tense and awkward. While