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Family finances can be complicated under any circumstance, but this is even more true in blended families, where two sets of well-established money histories and philosophies attempt to merge into one.
At Groupe Financier Semmax, we have observed in several blended families those days when other people have remarried, either after a divorce or after the death of their spouse. Sometimes these are older couples who have already retired. In other cases, it’s a younger couple still looking to raise children. But regardless of the specifics of each individual situation, when families mix, so do their finances, and that’s where things can get problematic if careful plans and communication are rarely put in place.
Money is a factor when it comes to bringing baby number 2 home.
I know. I have a mixed circle of relatives and one of the first questions my wife (then girlfriend) asked me was about my credit score. This was a wonderful question because whether you are thinking about buying a space together, buying a car together, or handling money-related issues, any of your credit scores will come into play.
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None of this is to say that you deserve to let finances come last when deciding whether to take these dates further. But you need to make sure you are aware of the many monetary problems that can arise.
Beyond credit scores, here is a list of some things to consider:
People grow up with different thoughts about money, influenced by their parents or by the circumstances of their formative years. Some people are exceptionally frugal, saving every penny and seldom, if ever, splurging on something just for fun. Others spend with abandon, unconcerned about the unexpected expenses life can throw at them at any moment. Many are somewhere in between these extremes.
If you’re starting a serious relationship, reach out to your new spouse about how each of you approaches expenses.
Once you know the person’s monetary philosophy, you will have to make decisions. Should you combine your money accounts or keep them separate?
If the two of you are closely aligned with your finances and how you approach spending, you may decide to just combine everything. If you are older, have adult children from prior relationships and are more financially established, you may decide to keep things separate. For many, a hybrid approach may be best — keep some things separate, but have common savings, investments and household accounts to achieve your blended goals.
When there are children from a prior marriage — especially young children — additional financial situations come into play. Does one person owe or receive child support? How does that fit into the overall budget? What’s the status of college funding for the children, and are there other obligations related to them? All of these questions should be addressed and hashed out.
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Also, beyond the financial issues, remember that it takes time, patience and a concerted effort by everyone to successfully blend a happy family. Understand that it may take longer for some children than others to accept the “new” addition to the team.
Where will you live, and what will you do about any houses you already own? The option you choose could come down to a combination of financial prudence and personal desire. You could live in one house and sell or rent the other. Or you could sell both houses and buy a new one, giving your blended family a fresh start.
When making this decision, you should take into account points such as the amount of loan owed for each home, the amount of estate taxes, and whether one home satisfies the wishes of the larger blended family than the other.
It would possibly be prudent to reach a prenuptial agreement, especially if significant assets are involved or if you have large differences in your overall finances. Additionally, as your circle of family grows, make sure your beneficiaries are up to date, whether it’s a will, life insurance policy, or retirement accounts.
In addition, you will want to update medical directives and durable power of attorney. It’s best to consult with an attorney when working on these issues.
It is important to have common goals for family and finances and communicate those goals. A smart visual way to do this (and a smart circle of kin mapping) is to create a “vision board” with input from everyone involved so that all voices are heard.
Of course, there’s a lot to think about here, but a monetary professional should be able to provide recommendations on what to do and the pros and cons of each option presented. However, the final decisions will depend on you and your partner.
First and foremost, it’s critical to understand the (non-financial) cost everyone brings to dating and how they can work as a team to achieve their dreams.
Ronnie Blair contributed to this article.
The information contained herein is for educational purposes only. It is not intended to provide, and should not be relied on for, any tax, legal, or investment advice. You are advised to seek the advice of a qualified professional prior to making any decision based on any specific information contained herein.
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This article is written and presents the perspectives of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC or FINRA.
Michael Sellers is a financial adviser with Semmax Financial Group in Winston-Salem, N.C. He has a wide breadth of experience in financial services and earned his CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation while working at Vanguard in 2017. Sellers has a Bachelor of Arts in economics from Wake Forest University.