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Blending Finances in Blended Families | Blended Family Finances | First Financial Consulting

So, you’re married again and hopefully still experiencing that sublime romantic bliss. Although you only have eyes for each other right now, other aspects of your new togetherness will soon come into view. Unfortunately, the euphoria and romance of the courtship and honeymoon often give way to despair and resentment. Preventing this is as much a matter of dedication as communication, especially for second marriages with blended families. One of the keys to a successful marriage is frequent and honest discussions about financial issues.

Before jumping into the topic of blended finances, let me set the stage a bit. I want to talk from the heart as a financial planner who has seen the good, bad, and ugly of blended families. I want to do everything I can to ensure the longevity and contentedness of your marriage for your sake as well as for the children who live through it and who usually feel its effects more deeply.

The one great truth about blended families is that, with rare exceptions, all of them have faced enormous losses. With this usually comes much grieving and oftentimes an exaggerated sense of self-protection. Whether from the death of the first spouse or even a divorce, a prior relationship has been lost. The adults in a blended family have had to grieve for the loss of a partner, a marriage, and their dreams about what they thought life would be like. The children grieve – often long after the parents stop – the loss of a parent, some amount of access to that parent, stability, commitment, their sense of trust, and where they belong.

It is inevitable that this pain will lead to a desire to protect yourself from ever having to experience it again. Unfortunately, trying to protect yourself can cause you to not give completely of yourself as much as the concept of marriage requires, thus sowing the seeds for another failure. In working with blended families we see this most often displayed in how the couple handles finances.

The most common arrangement is for a couple to maintain common and separate accounts trying to cover the “your, mine, and our” expenses. It’s not that this is a bad model, it’s just that it is never as easy as the couple first thinks, and it is rarely successfully discussed before the marriage. Although the variations on this approach are endless, let’s look at one fairly common approach.

The couple decides to pull from their separate accounts an “equal” amount into a common account to pay for all the common expenses. Most of the time, though, spouses don’t earn the same amounts. Thus, an equal dollar contribution can easily be unequal – and substantially so – as a percentage of earnings. All too often, feelings of resentment arise and each spouse starts thinking protectively about their “own” account.

Another concept of equality needs to be explored as well. Children in a blended family most often get the raw end of the deal. Alimony, child support, and gifts from the grandparents are rarely equal among all the kids in a blended family. Inevitably, one or more will feel hurt and complain bitterly to their biological parent. The parent’s natural reaction is to take his or her “real” child’s interest to heart, and, lo and behold, an argument has started over money.

This article is too short a space to cover this topic entirely. I think the best approach is to offer some guidelines as to the issues which should be covered thoroughly and then to end with some general observations on what works best.

It is best to take the following steps before re-marrying, and it is critical to do so if you are already married:

  1. Discuss both short term and long term goals.
  2. Put together separate AND a combined net worth statement.
  3. Prepare separate AND combined budgets so that you agree on a common approach.
  4. Determine and then write down on paper how these expenses are to be handled.
  5. Pay special attention to liabilities (tax and other) leftover from the previous marriage.
  6. Update your will and/or living trusts to reflect what happens should you die.
  7. Review all your insurance needs – health, disability, life, and property & casualty.

In parting, let me add a comment on what the end-game looks like. One day, you will die, and all that will remain is your legacy. Everyone leaves a legacy – either good or bad. If not for your own ego’s sake, then for your children’s sake, do everything you can to leave a positive legacy. Make this marriage work. A lasting commitment to each other, honest discussion about money, and equality between all the kids are the foundations of success.

No matter what the differences in incomes, financial standing, inheritance, etc. between you, please make the decision to treat all the kids the same. If one gets a car, all get a car. If one goes to a private college, all go to a private college. Don’t let “grandma” give birthday gifts just to “her” grandkids. She should give to all the kids on their birthdays. Use child support for the children. Don’t simply put it into the common budget as an income item. Treat the kids as if they are brothers and sisters, all in the same family, and over time, they’ll come to really believe it.

You are undertaking one of the most difficult challenges of your life – building one family out of two. This will be a huge part of the legacy you leave. It is my wish that when you come to the end of your days, you will be able to see the tangible elements of your success: happy, well-adjusted, and spiritually mature children and grandchildren. In this regard, money is one of the most powerful things man has ever invented. It can bring you together or tear you apart. It can mature your children or destroy them. How you and your spouse handle it will go along way to shaping the legacy that you leave and your children continue.