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Financial Planning for Blended Families

blend·ed fam·i·ly
noun
NORTH AMERICA

  1. a family consisting of a couple and their children from this and all previous relationships.

 

The joining of two families can be an exciting time but also a time when you will be faced with many financial decisions.  There are many aspects of life to plan for, from living arrangements to healthcare coverage to future estate plans.  Careful consideration should be given to maintain the wishes of each spouse.  Depending on what stage of life you are in, you may be joining families while there are still children living in your household, or maybe your children are grown and on their own.  These are some of the key issues that should be addressed during this transition.

Update Beneficiaries and Insurance Policies
One of the first steps should be to update the beneficiary to your new spouse on your 401k, other retirement accounts, and life insurance policies, whether provided by your employer or privately owned.  In some instances, you may be legally bound to leave life insurance to an ex-spouse, which would be an exception to this rule.  In addition to beneficiary changes, updates should be made to auto, homeowners, and umbrella policies to add your new spouse and possibly stepchildren.  Be sure to shop around for cost effective insurance coverage as you will usually get a discount when adding autos to an existing policy.

General Expenses
It is extremely important to determine if all finances will be handled jointly or if some expenses, perhaps for children, will be kept separately.  There is no right or wrong way to handle finances when blending families.  It depends on your specific situation and the sooner these decisions are made, the better- ideally before you tie the knot.  Day to day expenses can vary significantly depending on the age of the children.  For example, if children are old enough to drive there will be extra premiums on car insurance.   While you may have agreed that household expenses will be split equally, an expense like college tuition or college funding may not be an item that is viewed the same way.

The easiest way to tackle this task is to create a list of all expenses or a budget.  This way you can both get a full and clear picture of what is to come.  If you do decide to isolate any expenses, you may want to keep separate bank accounts for funding these designated items, but always be open and honest about these accounts and their contents.   Costs will undoubtedly change over time so you will want to review these expenses on an annual basis.

Health Insurance
Generally, the parent who is claiming the child as a dependent on their tax return is the one responsible for obtaining health insurance for their child.  The divorce settlement legally states which parent is required to provide coverage.  Health insurance coverage for children may not be an issue in the new marriage if the non-custodial parent is required to provide it.  If that is not the case, then you will want to explore the most cost effective option for the most comprehensive coverage for your whole family.  Stepchildren are typically eligible on plans that cover children as a rule, but that will need to be confirmed with your health insurance provider.  Coverage through the federal healthcare exchange https://www.healthcare.gov/ may also be an option although there may be changes to that system in coming years.

Financial Plan and Investments
A new financial plan should be created for the family that reflects the needs, goals, and objectives of each spouse.  It will be important to discuss money handling styles.  Are you both savers or spenders?  Are you some combination of the two?  How do you feel about your investments and the amount of risk you are willing to take?  You will want to discuss retirement goals as a couple which may alter current saving and spending patterns.  There may be a need to purchase additional life insurance at this time.  All of these items can be addressed by your advisor and a full financial plan.

Estate Planning
Your estate planning documents will need to be changed when getting remarried.  More decisions will need to be made regarding the distribution of assets in the future, and there are a variety of ways to handle this distribution.  You may decide to split assets equally among all children or choose to keep your natural children as heirs to specific assets.  More complex estate planning techniques may be utilized when necessary in cases where estate taxes are an issue or you would like to create a specific legacy for heirs.  One example is using a QTIP trust that provides for a surviving spouse and still provides for children.  An example using property owned by a QTIP trust allows your surviving spouse to have lifetime use of a house which then transfers to your natural children upon the spouse’s death.

There are many financial issues to address when blending families, some simple and some that will require more thought.  Consideration must be given to your new spouse as well as all children.  As with most financial matters, having a strong plan in place will allow you to feel more confident as you form your new family.

 

Chrissy Canapari, ChFC® serves as Senior Financial Advisor and Manager of Client Services at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail her at ccanapari@strategicpoint.com.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Chrissy’s opinions and comments expressed on this site are her own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.