Money conversations with one couple can be complex as each individual brings their unique family history around money, values, financial resources and obligations. 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 only increases with blended families as the number of parents and children expand the money conversation. I have personally experienced the financial complexity and extra need for communication with my blended family, having a daughter from my first marriage and two children with my current and “final” husband. From my personal experience, in addition to working with clients, blended families need additional planning for the various life stages.
In general, when a new couple marries for the first time, financial conversations do not include decisions about whether or not children will receive allowances. However, when marriage creates a blended family, conversations quickly jump to kids and spending. Couples need to have a clear understanding of both the obligations and resources each parent brings to the marriage. Obligations can include child support and spousal maintenance in addition to any outstanding debts. Resources include the assets each person brings to the marriage, amounts saved for college, and child support. The expected standard of living of each family and a general understanding of the role the other parents play in the finances should also be taken into consideration. It is important to converse early as I have seen resentment and frustration build when couples haven’t established this understanding and when their values clash regarding the spending on kids.
My oldest daughter was only four years old when I married my “final” husband, and I know we certainly didn’t think about all of the financial aspects and decisions in terms of her financial needs and the impact of having two sets of parents involved in making those decisions. Spending 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 are talking about some big dollars when it comes to kids and spending, considering that the average cost for a middle-income family to raise a child born in 2013 to age 18 increased to $245,000 according to the latest report from the U.S. Department of Agriculture.
When a couple marries and has kids from their prior marriage(s), the kids may come with different standards for living based on their parent’s values and financial resources. For example, one family may believe in allowances and the other may believe that kids should get a job to pay for their spending. One family may value public education and the other may believe in private school education. Then, there is the magical age of 16 and driving; does the child get a car and who pays for all the extra costs like insurance, gas and the actual car. Then, the child turns 18 and the big spending decisions come to light with college. Oftentimes our values around college funding are influenced by our own experience and how our college was funded. Some parents believe that their kids should pay a portion of their college expenses and have a stake in the financial responsibility, while others feel that college education should be provided.&nb sp; There are many more scenarios such as should children work, is it all right to borrow funds for college, public versus private education, etc. Even the financial aid process becomes more complex as the stepparents’ income is included in the calculation for financial aid along with the custodial parent, the parent where the child lives most of the year. Now add one more layer to all of these conversations as there could be two sets of parents to combine the values and spending decisions.
Blended families bring another set of challenges when it comes to estate planning. The needs for both of the spouses and children need to be considered along with the wishes of each parent for passing their assets. Feelings can be hurt as the desire to ultimately pass assets to one’s kids does not necessarily indicate how one feels about their spouse. A spouse might have a desire to provide for the other spouse but ultimately wants to ensure that the assets pass to their children. There are structures and trust planning that can be established to ensure that assets ultimately pass to the kids but benefit the spouse while they are living. But how does it feel for the kids from the first marriage to wait another 20 years while their assets are locked in trust for their stepparent? Sometimes it may make sense to provide for the children at the first death in some fashion whether this is a gift or even designated assets such as p roceeds from a life insurance policy. Don’t forget to update the beneficiary designations on retirement accounts and life insurance policies as I have seen clients come in with their ex-spouse as the primary beneficiary.
There are many important considerations for a blended family as they establish a financial plan. Fortunately there are a number of different professionals that can provide support and education throughout this process. Financial advisors, lawyers, accountants, and even family therapists have important roles to play in this process. 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 as a reflection of your family values.