In 40% of all new marriages, at least one person was previously married (opens in new tab). Blended families come with unique financial dynamics that arise from merging families with different financial values, spending habits and money philosophies.
Most likely the way you talk to your kids about money is probably different too. Even couples from similar financial backgrounds can have very different viewpoints on chores, allowances and savings plans. The money rules of one parent may not work for the other. Bridging these differences is critical to a healthy and successful marriage, and, ideally, it begins before you get married.
Time to Get Financially Naked
Before even walking down the aisle, I always recommend that couples get “financially naked” with each other. Even after 20 years as a financial adviser, I am continually shocked by the number of people who don’t know what’s in their spouse’s 401(k) before they get married. It is essential to understand what each person is bringing — or not bringing — to the marriage. This includes knowing each other’s financial background and current situation, such as if they have credit card debt or student loans.
Finances can be even more challenging when one party is paying or receiving child support, as the payments vary as time goes on. Often the pot of money available to support the new family unit is reduced, requiring dollars to stretch further. Without sound long-term planning, that will be tough.
A Prenup Can Be Your Friend
Clear communication is essential for any marriage, but especially so for a blended family. Starting off on the right financial foot means discussing your financial situations before tying the knot, and one of the most effective tools to facilitate this dialog is a pre-nuptial agreement.
These documents are key for protecting yourself and your children. Yet, a recurring barrier is the hesitation to get real and talk about money with your future spouse. For women, especially, prenups are vital. For many women, caring for children could take you out of the workforce for years, and re-entering would mean a lower starting salary.
Alan Feigenbaum, a matrimonial attorney in Blank Rome's New York Office, says “As difficult as it may be to tackle the subject head on with your soon-to-be spouse, one should not assume that, after leaving the workforce as a professional earning a sum certain, you can then re-enter the workforce 10-15 years later earning the same amount and in the same field. Vocational training may well be needed to become self-supporting — which itself is not free of cost.”
Feigenbaum recommends considering prenuptial agreements for blended families. “Prenuptial agreements address your rights to, among other things, spousal support in the event the marriage breaks down.” Feigenbaum states, “particularly in families that already have minor children under their roof, it merits exercising caution before agreeing to a waiver of any right to spousal support (temporary or post-divorce) if the prenuptial agreement is triggered.”
To do a prenup right, make sure the lawyer you’re working with has an excellent bedside manner and understands your needs. A prenup should help your marriage, not hurt it. If your prenup terms are draconian and harmful, it may alert you to the hidden characteristics of the person you are about to marry. Talking about money gives you a clear window into your partner’s personality. But a prenup doesn’t have to be unromantic; ultimately, you’re trying to make sure that you both are cared for.
Next, Tackle Estate Planning Together
Once you’re married, a blended family should move quickly to take care of estate planning. Estate planning is a love letter to the people you care for and critical when you have children from a previous marriage. In addition to ensuring your spouse is taken care of, it is essential to make sure that your assets go to your children in the way you desire. This is particularly important for women, as men typically remarry much faster and more frequently than women (opens in new tab).
Equally important is establishing a health care proxy to make medical decisions, and a power of attorney to make financial decisions on your behalf if you are unable to. “There always seems to be a tug-of-war occurring when it comes to estate planning for a blended family, with the want to provide for the financial security of a surviving spouse while at the same time securing an inheritance for children of a previous marriage,” says Gregory Cayne, a tax attorney specializing in trusts and estates, and a partner at the law firm of Grant, Herrmann, Schwartz & Klinger LLP in Midtown Manhattan.
Trusts Can Be Helpful for Blended Families Too
“Most commonly, through the use of marital (or spousal) trust planning, an estate planner can accomplish the goals at both ends of the rope,” Cayne says. “In this planning scheme, all assets of the first-to-die spouse would fund a marital trust (which also qualifies for the unlimited federal marital deduction) for the benefit of the surviving spouse. The marital trust would, at the very least, ensure that all income produced by its underlying assets be distributed to the surviving spouse at least annually, and that the principal of the trust can be distributed to the surviving spouse in the discretion of a third-party trustee, such as a family member (other than children), friend, certain advisers or a corporate trustee.
“Additionally, depending on a family’s circumstances, an estate planner may have to pair a marital trust with a credit shelter (or family) trust for the benefit of both a surviving spouse and children of a previous marriage. By including a credit shelter trust and funding it with an amount determined by formula or a sum certain, a first-to-die spouse will also ensure that a portion of his or her assets is available for the use of children of a previous marriage during the surviving spouse’s lifetime,” says Cayne.
Stay in Touch Going Forward with Regular Date Nights
In a blended family, like any other family, handling money effectively will take continual effort. Make time for financial date nights with your spouse to make sure you continue to get “financially naked.” Carve out 45 minutes to an hour every month, or so, where you can discuss these things and make sure you’re on the same page. One of the most common reasons couples end up getting a divorce is because of money and money arguments (opens in new tab). Open communication about money can help foster a healthy, financially sound, and, ultimately, a happy marriage.
Stacy is a nationally recognized financial expert and the President and CEO of Francis Financial Inc. (opens in new tab), which she founded 15 years ago. She is a Certified Financial Planner® (CFP®) and Certified Divorce Financial Analyst® (CDFA®) who provides advice to women going through transitions, such as divorce, widowhood and sudden wealth. She is also the founder of Savvy Ladies™, a nonprofit that has provided free personal finance education and resources to over 15,000 women.