Tips for Merging Finances for Blended Families
Marriage (and divorce) can have a big impact on a person’s financial situation. These implications can be even more significant and sweeping if two people marry for the second or third time and merge two existing families – each with its own children, assets, debts and entrenched financial values and habits. In 49 years of working with families, this topic is something we’re asked about often at.
As with most other aspects of marriage, the best course of action when two families (and their financial histories) become one, is to communicate, be honest and flexible, and to have an open mind.
Here are some steps we’ve found helpful when blending finances:
Discuss Finances Beforehand
Jumping into a second or subsequent marriage without first having a meaningful conversation about money management can set a stage for difficult challenges to a new couple’s finances, let alone to a fledgling marriage itself: Ongoing fights over money and finances are recognized as one of the major causes of divorce.
Therefore, it’s important to talk about your spending habits, budgeting preferences and overall financial mentality before tying the knot, if at all possible. This is also the time to discuss a possible prenuptial agreement, if you’re considering one.
These may be awkward conversations to have, but they’re crucial to a couple’s success. You don’t want to be blindsided by a huge debt your partner didn’t tell you about or be surprised to learn that he or she spends frivolously without regard to budget or the future.
When it comes to a second marriage, one or both partners may have adopted spending and saving strategies based on their previous marriage that their new partner finds unconventional or even unacceptable. This should be addressed early on with a goal toward compromise on how to handle finances together going forward, before it becomes a point of contention in the marriage.
Organize Assets, Debts, Accounts
An important step to organizing finances is to gather and review all pertinent financial information: Paystubs, previous years’ tax returns, bank statements, bills, loan paperwork, retirement and investment account info, college savings funds, etc. Make sure to include information about anything and everything that provides income or creates expenditure. This information should be current, accurate and comprehensive in order to collaboratively create a new, realistic household budget.
A financial advisor can help. In addition to offering an outside, unbiased opinion, a financial advisor can help keep emotion out of this process, focusing instead on agreed goals. Putting a financial plan in place together can help couples establish goals, financial needs and steps to take to make these dreams achievable.
To Merge Or Not To Merge
When getting married, there are some important questions a couple should answer:
- Will you share all income, accounts and expenses?
- Will you split certain household expenses but shoulder the burden of individual expenses, like car payments and credit card bills, or things like medical bills and college expenses?
- How will you handle the financial needs of children?
There are no right or wrong answers, and no "one-size-fits-all" instruction manual for guiding families who are combining households and finances. Some people will choose to share a joint account and all expenses, while others will maintain both joint and separate accounts but work out an equitable split of household and individual expenses. Other couples will continue to work out of their individual accounts and pay their own expenses while sharing joint expenses. What works well for one family might not suit another, and your “perfect” plan may even be some combination of the aforementioned methods, involving some deep discussion and creative math.
Create a New Budget
Budgeting is important at any stage of life, but it’s especially important when it comes to finances for blended families.
You may have created a new budget at the time of your first marriage, then revised it after divorce. Before starting a second marriage, it’s wise to once again review your situation and look at your individual budgets for each separate household as well as combining them. Determine combined income, subtract expenses you’ll no longer have (like a second rent or mortgage payment), adjust financial priorities and make allocations for new family expenses. Set financial goals for your new family, such as saving for a special family vacation, contributing to your children’s college education funds or planning for retirement.
If going from a single-parent, one-income household to a double-parent, two-income household, you may show more income on the new budget sheet, but you may also show more expenses! When there are more people relying on your fiscal responsibility, there is more to include into your budget and consider.
Treat Kids Equally
Whether you combine accounts and share the burden of expenses or keep your finances separate, how to plan to care for your children financially is something to discuss. If one spouse makes more money than the other and therefore will spend more on their own children than on their step-children, this can easily create animosity and resentment between the kids (not to mention the parents).
Make sure to include any kids in your new budget so that everything comes out relatively equally. This becomes particularly important when it comes to birthdays and holidays – parents in newly blended families should talk about how gifts are handled to avoid a battle over traditions or quality/quantity/cost of gifts.
It’s also wise to discuss and consider how you’ll handle teaching the kids about financial responsibility, in terms of chores, allowances and money management.
Hold Family Meetings
If dependent children will still be living in the household, then scheduling regular meetings can be helpful to discuss important issues, plans and problems – not just about money. These weekly or monthly meetings are a chance to plan for upcoming events, go over household rules, make compromises and discuss anything else going on with the family. Be respectful and open minded.
Including the kids – when appropriate – can give them a sense of purpose and responsibility and will let them know you value their thoughts and opinions.
Don’t Wait to Get Help From a Pro
It’s not unusual for couples to feel uncomfortable about planning finances for blended families. And it can be overwhelming to consider managing it all on your own. All new couples can benefit from sitting down with a professional financial advisor, but especially those forming a new blended family. Merging two existing households can be difficult without the financial element, which is often complicated. The possibility of alimony and child support can also further complicate things.
A financial advisor can help determine whether a prenuptial agreement is a wise decision, organize a couple’s debt and obligations and hash out a new budget that blends the newly merged incomes. A financial advisor can also help develop a plan for the future, including sending kids to college and saving for a newly planned retirement.