If you’re old enough to remember the sit com, The Brady Bunch, you might remember that Mike and Carol didn’t spend much time talking about finances like what they would do about braces, college costs for their kids or their life insurance. But if you’re about to blend two families, here are some tips that could help smooth out any possible bumps.
Talk early on
Ideally, everybody should talk about money and finances before marriage. But this is especially important if you’re blending two families with kids and other issues such as ailing parents. You should have honest conversations about your income, your expenses, your debts and other financial issues. It’s critical that the two of you fully disclose everything when you discuss money. You might actually be shocked at what you are told. In this case, don’t react immediately. Take some time to understand what you’ve heard and then discuss its effect on your finances.
Mix or keep separate?
If you and your about-to-be-spouse are totally like-minded in terms of money, then combining your finances might be the best option. However, it could be better to keep your money separate and share only certain expenses or accounts.
When you talk about your finances, you need to first agree on your financial roles and who will be responsible for what. Even if you have a very strong relationship, your household expenses can cause friction. You need to decide in advance which of you will pay which bills and how they will be paid. This is where it’s sometimes better to have separate accounts so long as the both of you believe that this is a fair arrangement.
Assuming you’re like most of us and have a very harried lifestyle and a number of financial obligations, it might be best to write out your agreements. That way you could reference it as necessary in the event you find you’re in disagreement over something.
Compare your financial philosophies
It’s also important to talk about your philosophies when it comes to spending, investing and especially saving. If you learn there are dramatic differences between your two philosophies, you need to decide right now where you could and couldn’t make compromises. If you find it tough to see how your money philosophies align, it could be good to discuss some different “what if” scenarios. For example, you could ask your about-to-be-spouse whether she or he would place more importance on paying off debt or taking a vacation or how much she or he would be willing to spend on a big purchase like a new car and what his or her vision would be for retirement.
Mutual financial goals
You should also try to create some common financial goals. For instance, how will you pay off your multiple debts effectively? How will you save up to buy a house? Where will you get the money to go on a vacation? These are only some of the goals that you can make. Once you have identified them, the two of you could make a plan for achieving them. If you find you cannot agree on your goals or how you will achieve them, you might consult with a financial advisor. He or she would provide an outsider’s opinion that could be very helpful.
One tricky area
Income taxes can be a tricky area for newly blended families. This can be especially true if the new arrangements change how one of the parents would claim one or more children as his or her dependents. There are times when this will be taken care of in the previous spouse’s divorce agreement. If not, make sure that you all agree as to who will provide each child with the primary financial support and that all parents abide by the IRS rules.
Dr. Phil thinks there are three other challenges that must be addressed in blended families as he reveals in this video.
The conversation that’s tough to have
The conversation that’s really tough to have is about death. When families are blended, this makes for more choices in how assets will be passed down to each person’s children or other loved ones. Since this is an unpleasant subject, it is often overlooked when parents combine households. While this may seem an obvious thing to do, many people forget to have that conversation. It’s important to check the names of beneficiaries for savings accounts, retirement accounts, life insurance policies and investment accounts – if appropriate. This is because the implications can be dreadful. The problem is that many of us pick our beneficiaries when we get a new job or buy a life insurance policy. But between the time we name our beneficiaries and get a divorce, numerous years can have passed. This makes it not uncommon to lose track of our designations. But this small memory slip can have dire consequences. When you die, you don’t want your new wife to find out that the money from your life insurance policy or a payout from your pension will go to the former wife. That would be a devastating surprise, especially if the family is of moderate means and the proceeds from the insurance policy would be needed to help the window stay in their home or even to pay funeral expenses.
For one big, happy family
You need to pay attention to details whether you’re creating a bill-paying system or planning for what happens to your family after you’re gone. Financial planning can’t guarantee that the two of you will stay together for the long haul. But it can go a long way towards making the blending of those two households go more smoothly.