A Guide for Blended Family Finances
Deciding to combine two families can be challenging and requires patience, but the result can be a strong, bonded, blended family that provides a place for everyone. Getting there means having a clear plan, communicating feelings and needs honestly, setting good boundaries, and being very transparent about the essential things.
The financial underpinning of family life follows the same playbook. You'll need a plan to incorporate existing finances, respect financial obligations related to previous relationships, and create a structure to move forward together while protecting each other's existing families.
Start with the Togetherness agreement
Outlining a plan for how the situation will work is an excellent place to start. Think about it from the point of view of what you will do together and for each other. This is an agreement that takes time and work. Here are some questions to get started:
What are your assets, debts, dreams, and obligations look like?
How will the day to day financials be handled? What are you obligations, my obligations, and our obligations?
What do you want your lives to look like?
Are there any big scheduling things everyone should know about?
And there are many more questions and discussions to have.
This part isn't about telling your spouse what you want to do, it is for your spouse, you want to discuss how your blended family will work and what each of you needs to be sure you have time for children, each other, and yourselves as the situation evolves. Needing to dive deeper into Togetherness, read this article on Planning for a Blended Family.
Map the Money
Go into the planning with a clear idea of each spouse's financial situation. Set up a meeting where you'll have space and won't be disturbed for several hours. Your goal is to be as honest and transparent as possible about every aspect of your financial life. Full disclosure now is how you can begin to make informed decisions about how you will pay shared household bills, who will pay what expenses for children, and what expectations are.
On the debt side, you want to understand existing bills, credit card balances, loan payments, mortgages and leases, tuition payments, average household expenses, etc. Alimony and child support expenses may be included here, or they may be in your income column.
When setting out income, be sure to include everything – you'll want to do some tax planning, so you'll need to have a clear idea of what each spouse makes and the total household income. If you have any agreement with an ex-spouse over future payments, the sale of property, or any other financial arrangement, that should be made clear.
Whether you are sharing assets or not, it's good to be upfront about retirement fund assets, brokerage accounts, education savings plans, and any valuable property. You'll also want to disclose your credit rating. You'll need to make informed decisions as a couple about the best way to manage debt or large purchases, and credit scores are a big part of that.
Create a Plan for Household Expenses
Everyone does this differently, and there's no right way. Depending on income, one partner may pay all the expenses, or they may be split according to each partner's income. As part of this exercise, creating a basic budget can help you understand each partner's expectations.
· How often do you want to eat out?
· What are the most important things to spend money on?
· Where do you want to vacation?
· How often do you buy new things?
Understanding what each person values and needs from the beginning can help you set up a plan that negotiates these things in advance, avoiding anger, risk meter, their safety net, anxiety, and hurt feelings later.
Whatever the spending arrangement is, you'll need to figure out an equitable way to pay for children's expenses. The goal is to ensure that all the children are treated fairly and as much alike as possible.
Plan for Future Spending and Saving
Once you've disclosed your current financial situation and figured out a working budget and a plan to pay for it, you can get to the goal-setting part. A good baseline to set is how you will plan for a future life together, what arrangements you will make if the employment picture changes for one spouse, and even what each spouse wants to do in their career. What does retirement planning look like for you and your spouse. This can help keep you united as you transition from "yours" and "mine" to "ours."
Estate Planning
Conceptualize your estate plan by thinking through what each spouse's children will receive from their separate estates, and then if any bequests will be made from a joint estate. Carry out the plan by ensuring that all accounts are held in the correct names, beneficiaries are updated, and trusts are set up where necessary. There are many things to consider when planning for your estate as a blended family, having common estate planning techniques may not be the best course of action for a blended family, working with a dedicated and specialized team in your corner will help bring your family together.
The Bottom Line
Blending finances and families are critical to ensuring that everyone's needs are met, now and in the future. Ask your spouse, ‘How can I meet your needs in this area?’ It can be difficult to initiate these conversations and create suitable structures to implement a plan, have conversation early, and often as life changes. Working with a financial advisor who can bring both spouses' needs into the conversation can keep you on track. Reach out and let us know how we can help!
Copyright: Stonebridge Wealth 2022
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.