“I Do” Take Two: Special Financial Considerations for Blended Families

Anyone who has ever attended a wedding has heard lots of statements about love, hope, happiness, and other positive attributes, and that’s as it should be. When two people decide to join their lives together, whether for the first time or in a re-marriage, the occasion should be marked by joyful anticipation and positive, forward-looking expectations, both from the couple and from everyone who cares about them.

But especially concerning re-marriages, this is also a time to consider the ramifications of blending a family. And when either or both new spouses bring children into the new union, these considerations become even more critical. Foremost in these considerations are financial matters. Here are some key things to think about if you are considering or already involved in creating a new blended family.

• Communicate. It is certainly no secret that good communication is the primary foundation for any meaningful relationship, whether in business, friendship, or—and maybe most important of all—marriage. Open, honest communication must precede everything else, especially for two people who have decided to share their lives.

This is nowhere more true than with the couple’s finances. Many would describe financial infidelity—among other things, concealing spending and financial accounts from a spouse—as nearly as destructive to the relationship as physical infidelity. And unfortunately, financial infidelity is all too common. According to a 2019 report from CreditCards.com, some 20% of Americans are concealing a financial account from a spouse or other life partner—in most cases, not because they want to surprise their partner with a gift! Needless to say, this practice is no way to build trust in a relationship.

• Estate planning. For new families with significant assets, it is vital to establish a clear understanding of the estate each spouse brings to the union. When children from more than one marriage are involved, the spouses must communicate with each other about their expectations for leaving assets to the children. For example, if one or both spouses have trusts created for college expenses before the marriage, both need to know that these assets will likely be maintained as non-marital property by the spouse who created the trust. Typically, this can include assets either partner brought into the marriage and inheritances received after the marriage began. The form of ownership of such assets is essential, too. If they are held in an account designated either “tenants in common” or “joint ownership with right of survivorship,” they will typically be considered equal commingled assets belonging to both spouses. For this reason, assets intended to be maintained as separate property should be held in a trust designated for that purpose or in an account owned only by the partner who owns the assets. On the other hand, the new spouses may want to formulate a new agreement about any financial support or inheritance each will provide to their respective step-children.

• Prior obligations and beneficiaries. Some partners may come to the new marriage with pre-existing contractual obligations to an ex-spouse that must be considered (alimony, child support, etc.); these should be clearly communicated to and understood by the new spouse. Another important consideration is the beneficiary designation of assets like life insurance policies, annuities, and retirement accounts are designated. Typically, these accounts have named beneficiaries who will receive the assets upon the account owner’s death, often without going through the probate process. It is all too common for an old IRA account or life insurance policy, for example, to contain an out-of-date beneficiary designation that does not accord with the account owner’s current intentions. For this reason, it is vital for both spouses in a new blended family to review their life insurance policies, retirement accounts, and other assets with named beneficiaries to make sure that the designations reflect their current wishes. Because many beneficiary designations also permit the owner to set the percentage of the total benefit that will go to each beneficiary upon the owner’s death, these percentages should also be reviewed to be sure that they accord with the owner’s current intentions.

As a fiduciary financial planner and wealth advisor, Aspen Wealth Management has the expertise and experience to provide financial guidance and advice for your family – always in your best interest. To learn more, visit our website to set up a free consultation with one of our financial planning professionals.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.