Financial Tips for Blended Families
How to Plan Ahead to Tackle the Special Challenges Your Family May FaceKathy Longo, CFP®, CAP®, CDFA® Monday, 23 November 2020
Life can be beautifully complicated sometimes. That’s certainly true for people with blended families, like mine. My husband and I adopted two children from Guatemala after we were married, and we also have a daughter from my first marriage. Fifty years ago, a familial structure like ours would have been atypical, but blended families are quite common today.
You’ll face a variety of challenges if you’re entering a second marriage with children from a previous relationship. When it comes to the financial implications, you’ll need to plan thoughtfully for this transition. Use the three questions below to help navigate your blended family’s finances and facilitate important conversations that help you avoid common frustrations and misunderstandings.
Question 1: What are your obligations and resources?
A couple that has a blended family needs to have a clear understanding of the obligations and resources that each parent brings to the marriage. Obligations can include child support and spousal maintenance in addition to any outstanding debts. Resources can include the assets each person brings to the relationship, amounts saved for college, and child support.
Many people find it difficult to openly discuss finances, but this is vitally important for any marriage – and particularly for blended families. It’s helpful when both spouses go into the conversation willing to be straightforward and non-judgmental, so set some ground rules to help you navigate these tricky issues.
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Question 2: What standard of living is expected?
Children in blended families may join the blended family with different standards of living based on their parents’ values and financial resources. We’re talking about some big dollars when it comes to kids and spending. The average cost for a middle-income family to raise a child born in 2015 to age 18, according to the U.S. Department of Agriculture, has risen to $233,610. This number is astounding because it doesn’t even include college costs.
It is important for blended families to begin talking early on about the expected standard of living within the shared household. If you don’t have these conversations, you lose the opportunity to come to a mutual understanding about how much to spend on the kids or to note clashes in money values, and the situation becomes one in which frustration can easily build. For example, one family may believe in giving allowances, while another may believe that kids should get a job to pay for their own spending. Another may value public education, while yet another may value private schooling.
Many parents in blended families underestimate just how many consequential financial decisions they’ll have to make in order to meet a child’s monetary needs. Oftentimes, there will be ex-spouses involved in the discussions too, which adds more potential for contention. As kids age, the decision points will evolve. Every phase seems to bring a new spending challenge for blended families. For example, when kids start driving it leads to conversations about whether they get a car and who pays for insurance, gas, and the vehicle. At age 18, even bigger spending considerations come to the forefront as discussions about paying for college unfold. Who should pay for college? What percentage should each parent contribute? Do certain expectations need to be met, such as a particular grade point average, in order for payments to continue? Oftentimes, our values in terms of college funding are influenced by our own experience and how our own higher education was funded. Some parents believe kids should pay a portion of their own college expenses, while others feel that a college education is something parents should provide.
Additional considerations, such as whether children work while in college, whether it’s acceptable to borrow funds for tuition, and whether both public and private schools are on the table as options, must also be considered. For blended families, even the financial aid process becomes more complex because stepparents’ income is included in financial aid calculations along with that of the custodial parent, making it more difficult to qualify for assistance even if the family unit with a higher income doesn’t meaningfully contribute to the college costs.
The bottom line here is to have discussions early and often and to include all necessary parties from the outset.
Question 3: What happens when you die?
No one likes to think about this question, but it’s a crucial one for blended families to discuss due to another set of special challenges with estate planning: the “his, hers and ours” conundrum. The needs of both spouses and their children must be considered for passing on assets. This can lead to misunderstandings and hurt feelings. For instance, a spouse might have a desire to provide for the other spouse but, ultimately, wants to ensure that their assets pass to their children. There are structures and trust planning strategies that can be used to ensure assets, ultimately, go to the kids, while also benefiting the spouse while he or she is still living. But how does it feel for the kids from a first marriage to wait another twenty years while assets are locked in a trust for their stepparent? Sometimes, it makes sense to provide for the children in some fashion when the first spouse passes away, whether this is a gift or even designated assets like proceeds from a life insurance policy.
It's also important to consider your ex-spouse while estate planning. Will they be entitled to anything when you pass? Will your ex-spouse leave the kids anything? If so, how will that impact your estate planning goals? For example, if your ex-spouse is leaving a $500,000 legacy for your child, that could impact your own planning decisions.
Estate planning can be challenging for anyone, but blended families often have different goals. Utilizing a financial advisor or an estate planning attorney may be useful as you explore your options.
Final Thoughts on Financial Considerations for Blended Families
Every blended family’s situation is unique, and no one knows yours better than you. Although the above questions can get you started on important discussions, don’t stop there. The best thing you can do for your blended family is to keep the lines of communication open and to ensure every family member is included in financial discussions that impact them.
Was this topic useful to you? Read more in my book, Flourish Financially: Values, Transitions, and Big Conversations.
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.