Before You Remarry: Blending 2 Families' Finances
Financial planning when preparing for a new marriage is always a challenge, but it can be even harder when you're trying to blend two families. Whether you both have kids or just one of you is bringing children into your second marriage, here are some steps to plan for your newly combined family.Be Honest About Finances in Your First Marriage
A leading reason for divorce is money arguments. Even if your first marriage did not dissolve for financial reasons, you still bring lessons learned and possibly some baggage to your second marriage based on how you managed money with your former spouse.
If you don't want history to repeat itself, sit down with your future spouse and have an honest and specific discussion about the finances in your first marriage. What worked? What didn't? What would you do differently? How do you want to communicate about money this time around?
Be aware that this may be an uncomfortable and revealing conversation about your future spouse – but it is an important discussion to have. You may learn about financial sensitivities that you will be able to avoid in your upcoming marriage, which will leave you both better off.You Still Have to Figure Out All the Traditional Marital Finances
Like any married couple, to start off on the right foot you need to have discussions about your financial lives together. You need to talk about your income and any debts that you hold and your plan to repay those debts. You need to disclose your credit score to your partner. And you need to make sure you've both disclosed information about child support and alimony payments.
Now is also the time to talk about your long-term goals and to consider your money-management styles. Are you a saver or a spender? Negotiating solutions to any financial management incompatibilities now will save you from conflict in the future. It's also critical that you assess your retirement portfolios and consider how planning for retirement as a couple rather than as singles will change your investments.
Finally, you need to discuss logistics. Who will pay the bills? If you own homes, will you move to a new house, or will you live in one of yours? Will you rent the other? How will you track your spending each month? All of these questions will come up as you plan your lives together, and it is an opportunity to patiently negotiate your new lives together. (For more, see Tough Financial Questions to Ask Him Before Marrying.)How Will You Budget for Financial Obligations from Past Marriages
Not only do you and your spouse need to figure out household budgets and financial responsibilities within the marriage, but you also need to decide who is paying for the children and any child support payments and alimony.
There are as many types of financial plans out there as there are types of blended families. Some families decided to combine all accounts, some choose to keep them separate, while others create a yours, mine and ours financial plan, where there are many accounts to manage but never a question about who is responsible for what.
When you're coming up with a financial plan, be mindful of the following potential issues:
- If one spouse's income is tied up with alimony and child support payments, the other spouse often ends up paying the mortgage and the bills. It is critical to discuss any financial responsibilities and who will carry each financial burden – otherwise resentment may set in.
- Be as fair as possible. Kids notice unequal treatment, and that can cause significant amounts of stress in a blended household. Even if the finances work out so that some of the children are better off than the other stepsiblings, avoid making this obvious to the children. Don't buy one child a sports car while the other child in the household takes the bus.
- If you're hoping to have children together in your second marriage, discuss how you will manage finances for the new children relative to the children from your first marriages. Will it make sense to keep finances separate once you have biological children together? Be sure to discuss what's working in your plan as your family grows.
Regardless of what you decide, remember that if a plan isn't working for you, you can always change it. If you're having trouble coming up with a plan that will work for your family, consider consulting a professional financial planner. While it is your first time developing a system for your new blended family, financial planners have experience with complex family finances and can help guide you to a plan that works for you. (See How Advisors Can Help Couples Agree on Finances and How to Advise Clients Who Marry Late in Life.)Consider a Prenuptial Agreement
Prenuptial agreements have a bad reputation, but they are nothing more than financial and legal tools that help define financial lines in a marriage. For blended families, prenuptial agreements are worth considering – especially if significant assets or debts are brought into the second marriage.
If you bring any assets into your second marriage that you would like to pass on to your children, a prenuptial agreement is critical. Family heirlooms, shares in family businesses, inheritances and even college funds that have been saved for your children should be outlined in a prenuptial agreement. This will protect your children from losing their inheritances should something happen to you or to your marriage. Additionally, a prenuptial agreement can protect your future spouse from any debt that you bring into the marriage.Update Your Estate Plan
Before your second marriage, it is a good idea to make sure your legal ducks are in a row based on your new family needs. Make sure your will is updated and your children are protected in case of your death. Also make sure your life insurance and disability coverage are sufficient to cover your new family's needs, and update your beneficiaries to reflect your new spouse. If one or more of your children has a parent who is out of the picture, consider legally adopting each other's stepchildren or explicitly naming your new spouse as your own child's guardian in your will should something happen to you.The Bottom Line
Financial planning in any new marriage can be difficult, but figuring out a plan that works for all parties in a blended family can be even more complicated. Luckily there are wise and fair ways to plan so that everyone gets their financial needs met. It simply means taking the time to patiently map out a plan with your new spouse-to-be.