A couple’s money conversations can be complex, as each individual brings to the relationship their unique family history surrounding money, values, financial resources and obligations. And financial conversations take on a whole new meaning when kids are involved, as parents wrestle with spending decisions on allowances, education funding and, eventually, inheritances.
This complexity, however, only increases with blended families. The added perspectives and personalities that come with combining family units tends to expand the money conversation in new and sometimes challenging ways. On a personal note, I have experienced some of these financial complexities and the extra need for communication with my own blended family. I have a daughter from my first marriage and two children with my current and “final” husband. I’ve found, from both first-hand experience and my work with clients, that blended families need additional planning to prepare for various life stages.
When marriage creates a blended family, conversations can quickly jump to financial decisions involving kids and spending. Couples need 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, of course, child support. The standard of living each family expects to maintain and a general understanding of the financial role that the other parents will play should also be taken into consideration. It is important for blended families to begin this conversation early. I have seen many cases where resentment and frustration build when couples haven’t established this understanding, or when their values clash regarding what to spend on children.
My oldest daughter was only 4 years old when I married for a second time, and I know we certainly didn’t anticipate all the financial concerns and decisions that would be required to meet her monetary needs, or the impact of having two sets of parents involved in making those choices. The spending picture certainly looked different back then, before she even started school, particularly in comparison to her teenage years and now her freshman year in college. We’re talking about some big dollars when it comes to kids and spending, especially considering that the average cost for a middle-income family to raise a child born in 2013 to the age of 18 has increased to $245,000, according to the latest report from the U.S. Department of Agriculture.
When couples with children from their prior relationship(s) marry, the kids may come to the blended family with different standards of living based on their parent’s values and financial resources.
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. One family may value public education while another may value private schooling. Then there’s the magical age of 16 and driving privileges. Does the child get a car? And who pays for all the extra costs, like insurance, gas and the actual vehicle? Shortly after that, the child turns 18 and some bigger spending decisions arrive with college. Oftentimes our values around college funding are influenced by our own experience and how our own higher education was funded. Some parents believe that their kids should pay a portion of their college expenses and have a stake in the financial responsibility of going to school, while others feel that a college education is something they should provide to their progeny. There are many more financial scenarios to consider with this stage of life, such as should children work, whether it’s all right to borrow funds for college, and public versus private education. Even the financial aid process becomes more complex. Stepparents’ income is included in financial aid calculations, along with that of the custodial parent (the parent with which the child lives most of the year). Now, add one more layer to all of these conversations. There could be two sets of parents combining to make such values and spending decisions.
Blended families bring another set of challenges when it comes to estate planning. The needs of both spouses and the children must be considered, along with the wishes of each parent for passing on their assets. Feelings can easily be hurt. The desire to ultimately pass assets onto one’s children does not necessarily indicate how someone feels about their spouse. 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 established to ensure assets ultimately go to the kids, but benefit the spouse while he or she is still living. But how does it feel for the kids from a first marriage to wait another 20 years while assets are locked in trust for their stepparent? Sometimes it may make sense to provide for the children in some fashion when the first spouse passes away, whether this is a gift or even designated assets (such as proceeds from a life insurance policy). Don’t forget to correctly update the beneficiary designations on retirement accounts and life insurance policies. I have seen clients come in with their ex-spouse still listed as the primary beneficiary.
Clearly, there are many important considerations for a blended family to contemplate as they establish a financial plan. Fortunately, there are a number of professionals that can provide support and education throughout this process. Financial advisors, lawyers, accountants and even family therapists have important roles to play. However, due to the personal nature and implications of planning decisions for a blended family, the final path forward will be unique to each family and reflect that family’s values.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2015, The BAM ALLIANCE