Dear Carrie,
I have two young children from a previous marriage and my soon-to-be husband has one (we will be sharing custody of all three kids). Given that we’re facing major adjustments as a new family, I’d like to ease the way. Do you have suggestions for how we should manage our finances? —A Reader
Dear Reader,
First, thank you for asking a question crucial to so many families. Whether it’s the result of marriage, divorce or remarriage, now more than ever parents and kids alike are having to adjust to changing circumstances. In fact, according to a 2015 report from the Pew Research Center, 16 percent of children are living with a step-parent, step-sibling or half-sibling in what the U.S. Census Bureau terms “blended families.”
But as common as these transitions have become, as a child of divorce myself, I know they aren’t easy. Certainly, divorce can strain a family’s finances. In addition, money can stir up emotions and rivalries.
Of course, every family is different in terms of wealth, structure and dynamics, so I can’t give you hard and fast rules. What I can offer are some things to think about.
Solidify your base
I believe a strong relationship starts with understanding and supporting each other’s values. As compatible as you may be, different attitudes toward money can pull you apart. To make sure you're on the same page, start by asking yourselves:
- As a couple, what do you want for each other?
- As parents, what example do you want to set for your children?
- Would you prefer to spend your extra money on your dream home, family vacations or top-notch schools?
- How do you feel about spending now versus saving for the future?
Also discuss what “fair” means to each of you, especially regarding your children. One of you may be coming into the marriage with more assets. Or one extended family may have more resources. And different kids have different needs. How will you deal with these imbalances?
Plus, don't ignore the role your two exes and multiple grandparents will play. Since you'll be sharing custody, consider the impact they'll have on your family and finances.
Discussing these things openly and honestly now will help you reach a common ground. And later, when you’re caught up in the whirlwind of daily life, you’ll be able to use these discussions as the basis for your financial decisions.
Consider a prenup
Even if you don’t create a legal document, I’d recommend that you and your fiancé discuss the issues that would normally be covered in a prenuptial agreement (a prenup), including to what extent you want to combine your assets and who will pay for what. The key is to find a solution that works for both of you. Even if you never formalize the document, these conversations can serve as a roadmap for the ways you'll share expenses and responsibilities, especially as it pertains to your kids.
An important part of every prenup is full disclosure. At this point, both you and your fiancé have established separate financial lives. As you combine them, you both need to know exactly how much the other earns, owns and owes. That’s not to say you shouldn’t have separate property. You just shouldn’t have secrets.
Decide on the day-to-day
Once you’ve talked big-picture, get to the practical. For instance, if you both own a home, will you sell one or both? How will you equalize ownership and register title?
Will you have joint or individual bank and investment accounts? I’m a big believer in having a combination—yours, mine and ours—so you can each have autonomy as well as share in joint responsibilities and goals. That said, every couple has their own preferences.
Also, talk about how you'll split up financial tasks: paying bills, managing investments, preparing your tax return, etc. To my mind it doesn’t much matter how you divvy up these responsibilities so long as you both have complete knowledge and access to the family assets and fully participate in every important financial decision.
Look to the future
Looking ahead, think about how you'll pay for college, cars and other big-ticket items. Will you save and pay for these things on your own, or do you expect your kids to contribute? Do you plan to pay for private school and extra-curricular activities or do you want to save your education dollars for college?
And don’t forget about retirement. As much as we all want to support our children, it’s essential to make retirement savings a priority. I'd recommend that you each figure out how much to set aside every month and put it on automatic. Your kids will have options for paying for college, but you're on your own when it comes to retirement.
In addition, this is a good time to review your life insurance needs. Do you have the right amount of coverage to protect your loved ones? Are your beneficiary designations up to date?
And finally, don’t neglect your estate plan. Of course you don’t want to dwell on the negative, but as a responsible spouse and parent, it’s important to appoint a guardian for your kids and ensure any inheritance will go to the right people.
You’ll also want to update any existing estate planning documents like powers of attorney for health care and financial decisions, and medical directives. I suggest consulting an estate planning attorney before you get married. That way you can be confident everything will be handled according to your wishes.
Keep talking
As you and your fiancé enter this new and exciting phase of your life, there's a lot to discuss. But don't stop there. As your needs evolve, keep talking. And as your kids grow, include them in family discussions about how you manage and spend your money. That way, you’ll all be able to flourish in your new life together.
Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article.
For more updates, follow Carrie on LinkedIn and Twitter. This article originally appeared on Schwab.com. You can e-mail Carrie at askcarrie@schwab.com, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.