Financial Concerns for Blended Families

Blended families are on the rise: Almost 20 percent of children live in households that include a stepparent, stepsiblings or half-siblings, according to Pew Research. While blended families are rewarding in many ways, there can also be challenges.

When your new life with the one you love involves forging a new household with children from past relationships, there are bound to be ups and downs. Financial planning for a blended family could become stressful, with choices ranging from general money management to big-picture plans around topics such as college, estate planning and trusts. By taking steps to discuss financial concerns in advance and make careful plans together, you can smooth any potential bumps in your relationship regarding finances.

Protecting Wealth

When merging assets with a new spouse, it's important to discuss your approaches to building and protecting your wealth. Say one spouse is an aggressive investor with much of his or her net worth tied up in the markets, and the other spouse is more comfortable with safe investments such as CDs and cash value life insurance. You'll need to discuss your approaches and your expectations for managing and protecting your wealth.

Consider finding some common ground, such as a liquidating a certain amount of assets that can be available in case of a market downturn, while still relying on the market to continue growing your wealth over the long term.

Pinpoint Money Priorities

Your money priorities are the things that each of you value when it comes to spending money. One spouse may want to spend a lot of money on investments, while the other would rather spend on big trips or tangible items. One spouse may value spending money on children, while the other wants to spend on home improvements or furnishings.

Talk about why you value the things you prefer to spend money on most and be willing to listen to each other and work to understand where you’re coming from. For instance, if one spouse never got to wear nice clothes or participate in sports as child because money was tight, he or she may tend to overspend on their own children. Talk about those reasons and be willing to compromise if necessary.

Also, budget for each spouse to have some “mad money,” a certain amount they can spend each month on anything they want without discussion or approval from the other spouse.

Managing Money with Children

Next, spouses who are blending families should discuss their approaches to money issues with children. If either of you have children from previous relationships, discuss your financial obligations to them upfront.

That means talking about the average amount you plan to spend on your children each month. Will you be paying or receiving child support? Are you committed to paying for your children’s college education? When they are old enough, will you expect your children to get a job and pay for some of their own expenses, or do you plan to continue supporting them? When they are adults, do you plan to continue providing them with some financial assistance?

You may want to consider setting up a trust for your children. With a trust, you can set aside funds for your children to access when they reach a certain age, and those funds will not be part of the marital property shared by you and your new spouse.

If you and your new spouse plan to have children together, it’s a good idea to discuss your expectations for spending, saving and communicating about money with children. Think about the financial values you will want to impart to your children and the financial example you will want to set for them.

Combining Assets

You and your spouse-to-be should discuss whether you will combine assets such as homes, bank accounts and investments. Some married couples combine all financial assets, while others keep their assets separate.

Keep in mind that the way you handled it in your first marriage may not work for your second. For starters, you and your spouse-to-be may have greater assets, debts, or financial responsibilities than you had going into your first marriage. Take time to talk through all the variables.

Don’t think of it as an “all or nothing” proposition. You may want to consider keeping some things separate and merging other accounts. Over time, you may decide together to merge your finances more and more.

Setting Financial Goals

Finally, you and your spouse-to-be should discuss and set some short- and long-term money goals. Discuss your individual financial goals and set some financial goals to work towards together.

Your goals may include retiring by a certain age, purchasing a vacation home, leaving a legacy through charitable contributions, and building a lasting inheritance for your children. When you’ve established goals together, develop a plan for making them a reality. Working together to accomplish goals will help you forge a bond and build a connected family.

When you and your spouse-to-be establish open communication about finances and create a roadmap to building the financial life you want, you'll not only help protect your finances. You'll also strengthen your upcoming marriage.