Financial Planning for Blended Families

Blended families are an increasingly common family structure in the United States. Because of its distinct family structure, blended families face unique financial obstacles like differing financial habits, obligations from previous relationships and the need to plan for the future of a larger family unit.

MoneyGeek compiled a list of financial planning resources specifically for blended families to help navigate these complexities, build trust, set realistic expectations and work towards shared financial goals.

A blended family, also known as a stepfamily, is a family where at least one parent has children from a previous relationship, making the child or children part of the new family dynamic.

In 2019, one out of 10 children were living in married or cohabiting stepfamilies. The rise in divorce, remarriage and cohabitation has contributed to the increase in blended families, representing a diverse and evolving form of family structure in the country.

Embarking on the journey of blending families involves more than just emotional readiness. It also requires financial transparency as each family member brings their financial history, habits and expectations into the mix.

By openly discussing finances with their partner, families can build trust and prevent misunderstandings or conflicts that could arise from hidden assets, undisclosed debts or unexpressed financial expectations. Regular financial discussions should not be a one-time event but an ongoing dialogue even after marriage to ensure everyone stays on the same page regarding the family's financial situation and goals.

These pre-marriage financial discussions can help set realistic expectations, allowing for smoother financial integration.

• Initiate a Comprehensive Discussion: Start having detailed and candid financial discussions before joining families, where all parties involved disclose their financial situations. These discussions include sharing information about savings, investments, real estate and other valuable possessions. Revealing all debts is equally important as it can significantly impact the family's financial health.
• Full Financial Disclosure: Full disclosure provides a clear picture of the family's financial standing. It helps in understanding the extent of liabilities and in planning how to merge and manage the assets.
• Dive into Financial Personalities: Discussing individual financial habits and philosophies, spending patterns and attitudes towards money can help uncover potential differences and allow family members to better understand each other's financial values.

The need for ongoing financial discussions within a blended family remains paramount even after marriage.

• Regular Check-Ins: Financial situations can change due to factors such as job changes, health issues or economic fluctuations. Regular financial check-ins ensure that all family members are updated about these changes and can adjust plans and expectations accordingly.
• Platform for Collective Planning: Use financial discussions for family members to set and track financial goals as well as express their views, concerns and aspirations. Whether it's about making a significant purchase, investing in a new opportunity or adjusting the family budget, these conversations ensure that decisions are made collectively.

Couples entering blended families can benefit from resources provided by Smart Stepfamilies, Stepfamily Foundation and the National Stepfamily Resource Center (NSRC). These organizations offer guidance on financial discussions, ensuring couples are well-prepared for their journey.

One complex aspect of financial planning in a blended family is the division of assets. This process involves more than just splitting assets down the middle. It requires legal aspects and careful consideration of each family member's financial needs, responsibilities and contributions.

When dividing assets in a blended family, taking into account these essential factors can lead to a harmonious process and ensure a fair and equitable distribution:

Navigating the complex financial landscape in a blended family requires careful consideration of two crucial legal tools: prenuptial agreements and estate planning.

Financial disagreements and conflicts are not uncommon in any family, and blended families are no exception. Here are some strategies to effectively handle such situations:

From handling finances and splitting costs to creating a family budget, this section provides actionable insights to help you navigate these daily financial tasks effectively and harmoniously.

Blended families can employ various methods to manage their finances, each with its advantages and considerations. Here are some common strategies:

Splitting costs can be a complex process in a blended family. Here are some strategies to adopt:

• Proportional to Income: One common method is to split costs proportionally based on each adult's income. For instance, if one adult earns 60% of the total family income, they would contribute 60% towards shared expenses.
• Equal Division: Another approach is to divide costs equally among adults, regardless of individual income. This method emphasizes shared responsibility but may not be feasible if there's a significant income disparity.
• Based on Consumption: Some families may split costs based on individual consumption, especially for expenses like personal items or activities.

Establish a fair system that considers each adult's financial capabilities. Financial situations can change, so flexibility and regular adjustments are key. For example, if one adult's income decreases, the family may need to revisit their cost-splitting strategy.

Budgeting provides a clear picture of where the family's money is going and helps identify areas where adjustments might be needed. Here's a step-by-step guide on how to create a blended family budget.

Involving all family members in the budgeting process fosters a sense of responsibility and commitment. This practice teaches them valuable financial skills and helps ensure everyone understands the family's financial situation.

Deciding whether to financially support stepchildren is a personal decision that hinges on several factors: financial agreement with the other biological parent, the child's needs and your financial capability.

There's no obligation to provide financial support to your stepchildren — any assistance you offer should stem from a place of genuine willingness, not from a sense of imposed duty. If appropriate, have open discussions with your partner about this topic and with the children. You could also contribute in non-monetary ways, such as investing time in their education or hobbies.

Long-term financial planning in a blended family involves setting shared financial goals, planning for retirement and preparing for future expenses such as children's education. This process requires foresight, open communication and a commitment to shared family objectives.

Shared financial goals — such as buying a home, saving for vacations and building an emergency fund — unite the family and provide an opportunity to teach children about financial planning. The process involves identifying goals, determining costs and setting a realistic timeline.

Regular reviews are essential to track progress and make necessary adjustments. Open communication and mutual respect ensure everyone's views are heard and needs are considered.

Consider the retirement assets each spouse brings into the marriage, including Social Security, retirement plans, annuities and taxable investments. Couples should also discuss what their retirement will look like and how much they need to save. Beneficiary designations on family life insurance policies and retirement plans should be up-to-date, reflecting the current marital status.

Retirement planning should also include a discussion about taxes, exploring options like income splitting, spousal RRSPs, and gifting funds for TFSA deposits. Working with a financial advisor can help couples in blended families navigate these complexities and establish a retirement plan that maximizes their combined retirement assets.

With multiple children, having a strategy in place is a mindful thing to do. For instance, a blended family might have a child heading to college while another is just starting kindergarten. Tools like education savings accounts or 529 plans can be beneficial in setting aside funds for future educational expenses.

Parents should also be aware that remarriage can impact a student's college financial aid eligibility. According to the Free Application for Federal Student Aid (FAFSA) guidelines, stepparent's income and assets must be reported if the custodial parent remarries. This inclusion can potentially influence the student’s total financial aid eligibility regardless of prenuptial agreements.

Future expenses such as weddings or helping children buy their first home should also be part of the financial planning process. Balance these future expenses with other financial goals and responsibilities to avoid compromising your retirement savings or emergency fund.

1. The Stepfamily Foundation: This organization offers resources and support to blended families, helping them navigate the unique challenges they face.
2. National Stepfamily Resource Center: A comprehensive resource center that provides research-backed information and advice for stepfamilies.
3. FamilyLife Blended: Offers biblically-based materials to build stepfamilies, avoid remarriage and halt the divorce cycle.
4. Focus on the Family: Blended Families: Offers a variety of resources for remarriage and blended families, including articles, books and broadcasts.
5. Fatherhood.gov: Fatherhood.gov’s Blended Families page provides research and tips for navigating the challenges of blended families.
6. Blended Family Frappe: Provides a list of online and offline resources on becoming a stepparent, dealing with a high-conflict ex and handling parental alienation.