How to Manage Finances for Blended Families

American households have never been more diverse. As people marry, divorce and remarry at more frequent rates, blended families have become a larger part of American life.

“In a blended family, you may have an older husband with adult children who remarries a younger wife, who brings a minor child into the family. Then, they may decide to have a child of their own together,” said Jennifer Chess, CFP® senior wealth strategist with PNC Wealth Management. “The modern family has changed significantly and financial planning strategies have to change as well.”

Regardless of when a couple decides to combine family finances, there are simple steps to take in order to streamline blended finances at any age.

1. Evaluate Marriage if Over Age 50

Today, nearly 25% of couples have married at least twice, according to recent U.S. census data. Of those remarriages, women and men over age 50 make up the largest share of couples married two or more times.

Although, managing finances for a blended family can be a trial at any age, remarrying after age 50 comes with its own set of challenges. In many cases with second marriages, pension benefits or Social Security will reduce spousal support and healthcare insurance can change once a person remarries.

“For older couples that are considering marriage, issues like government benefits, income taxes and estate tax concerns can influence if or when a couple chooses to marry,” said Chess. “With remarriage, you have to consider that you may forfeit benefits.”

For couples that are counting on these programs for income or other benefits, it’s important to walk through your concerns with the program administrator or a financial planner.

“It’s important to have legal and financial plans in place and communicate them so there are no surprises,” said Chess. “Review with your financial advisor the options available and choose what works best for your family’s situation.”

2. Update Estate-Related Documents

Not updating estate documents after a divorce is often one of the most common mistakes people make. Couples in a second marriage may assume that any assets planned for a current spouse or family member will go to those intended after death. But in certain cases, if a will, beneficiary name, or health care directive isn’t updated, then ownership or authority could pass to a previous spouse. 

“With a second marriage, each spouse should revise all estate planning documents and beneficiary designations so that property passes to the intended heir,” said Chess.  “It’s also a good time to review your financial and healthcare powers of attorney. You should also consider the implications of naming, or not naming, your new spouse in these directives”.

3. Arrange Assets Properly

Figuring out who gets what and when in a blended family can be a complex issue, particularly for couples that have to account for assets and liabilities from prior relationships, the current one, or a combination of both. 

Gifting during a lifetime: Giving financial gifts or establishing trusts are often two strategies that many couples with businesses or substantial assets consider to help minimize expensive tax burdens. For couples that may want to transfer wealth while they are alive, gifting assets to each other or loved ones may help to reduce income tax or estate tax payments.

Assets After Death: Establishing trusts can be an ideal option to help spouses in a blended family determine when and where assets should go after a person’s death. 

Take fictional couple, Paul and Mary, for example. Prior to his death, 70-year-old Paul, who has adult children from a previous marriage, married second wife Mary, now 50. If Paul wants to ensure his share of assets ultimately goes to his adult children, while also providing for his surviving spouse, he may consider a trust.

“What we sometimes hear in cases like this is ‘my father never would have wanted us to wait until Mary died before we get an inheritance’,” said Chess. “Family communication isn’t easy, but it’s recommended especially with adult children, so that everyone understands the full picture.” 

4. Confirm Life Insurance Policies

Life insurance can be a useful way to pay off debts or protect assets for blended families. Because proceeds are normally available immediately after death, families can often use policy proceeds to pay off debts, provide an immediate inheritance or to replace the money used to pay estate taxes.

When couples remarry, they bring a mix of assets and obligations from previous relationships into the equation. Finding the right balance among his, hers and ours can be a daunting challenge. But with good financial advice and the right communication, combining finances can be a bit simpler for blended families.

For more advice and resources on managing your family’s financial plan, visit PNC Wealth Management »

Jennifer Chess is a senior wealth strategist and Certified Financial Planner^®

Common Considerations for Blended Family Finances:

1. Consider government benefits- What will you gain or lose after 50? Some older couples should consider pensions and Social Security rules when blending households.
2. Understand the Tax Picture- Will my spouse’s retirement income affect our tax bracket? Who gets what after I die? Who is responsible if your spouse owes child support?  What happens if you earn more than a retired spouse? For blended families that want to minimize tax liabilities for the short and long-term, putting a tax planning process in place should be a priority.
3. Update estate documents -Wills, healthcare directives, and beneficiary forms should be updated after a divorce and before remarriage.
4. Insurance for Life- Policies can help fund trusts or tax liabilities after death.