Each family is different and can be complicated in its own way. Two families blended together can increase the complexity of the relationships. Division of family expenses, division of property among children of different parents, and even differences in age can cause friction. Nevertheless, understanding your rights and responsibilities and having a plan in place is critical for your wishes to be known and fulfilled, and may keep family financial (and other) tensions to a minimum.

According to a study published in Demography, “. . . nearly 30% of American households have a stepkin tie in either the parent or adult child generation of their family and that stepkin ties are more common among households headed by younger adults.

Moreover, stepkin dramatically increase the size of families. Among households whose heads and wives have living parents, stepparents increase the total number of parents by close to 20%; among households headed by married couples who have adult children, stepchildren increase the total number of children by 66%.”1

Stepfamilies have become common in the United States — so common that a day has been set aside to celebrate them; National Stepfamily Day is celebrated each year on September 16.2

Relationships within each family are unique. Accordingly, each family will establish its own way of communicating and the rules for its relationships.

When two families come together, each member of the family will work out how to interact with the other members. This takes time and effort. If necessary, the family should seek professional assistance to help work through any issues.

This article focuses on the planning for the day-to-day financial and property relationships in a blended family. Of course, it is not possible to outline every possible family configuration and their ongoing financial and property management needs. Nevertheless, following are some general thoughts about “operations” in blended families.

Before Beginning, Understand the Rules

Every relationship has rules. The rules can be formal, informal or merely custom. For example, the underlying rules for our federal government and its relationship to the states and its citizens are formal and found in the U.S. Constitution. The United Kingdom’s constitution is unwritten (found in many separate documents and traditions)3, but no less respected. Interactions within your family, unless your family has a written family constitution, are governed by custom and influenced by many factors and traditions.

In the United States, rules regarding family relationships, other relationships between people and entities, and relationships to property are generally governed by the laws of the 50 states and the District of Columbia.4 As each state’s law is different, it is not possible to discuss them all here. However, before entering into a new (or different) family arrangement, you should consult an attorney in the state where you and your family intend to live to learn how that state’s laws will apply to your family.

Even though the rules governing your relationships may only come into play when conflict arises, the laws of the state where you reside establish the basic rules for family life and property ownership. If you plan to move from one state to another, the rules governing your relationships with people and property may change. If you have questions about how these rules could impact you and your family, you should consult an attorney skilled in domestic relations law in your state of residence or the state to which you are relocating.

Changing the Default Rules – Rules for Your Relationship

Many of the default rules regarding relationships can be modified by agreement. If you are planning to marry, they can be modified by a prenuptial agreement. If you are already married, in many but not all states they can be modified by a postnuptial agreement. If you are planning to cohabit without being married, many states allow them to be modified by a cohabitation agreement. Each of these agreements is a binding contract and should be treated like any other important legal transaction. Each person entering into the agreement should be represented by a separate attorney skilled in the law of domestic relations. Although this seems complicated, it is (generally) required by the rules of attorney ethics5 and ensures that there is skilled advisor without a conflict of interest to protect the rights of each person.

State law sets the rules for creating prenuptial, postnuptial and cohabitation agreements. Different standards apply to each type of agreement. For example, because spouses stand in a fiduciary relationship to one another6 there is a higher duty of good faith and fair dealing between spouses when negotiating a postnuptial agreement that may not apply when negotiating a prenuptial agreement. “Agreements between spouses, unlike ordinary business contracts, involve a fiduciary relationship requiring the utmost of good faith.”7 Differences in state law can be important, as not all states recognize or enforce cohabitation agreements between unmarried parties. For example, in Illinois, “unmarried individuals may make express or implied contracts with one another, and such contracts will be enforceable if they are not based on a relationship indistinguishable from marriage.”8

Many state law rules can only be changed by agreement between the parties to the relationship. Some of those rules include support when a relationship ends, property division when a relationship ends and property division following death.

During Your Relationship

Support

Generally, while married,9 spouses must financially support one another and their family by providing the necessities of life.10 Spouses can agree as to how they will manage their finances and which spouse will pay which household expenses. Although such arrangements are usually informal, they can be formalized in a prenuptial or postnuptial agreement. Often, spouses who keep their assets and income separate establish one or more co-owned accounts into which each deposits funds and from which household expenses are paid. Transfers of property between spouses, generally, do not result in an income tax11 or gift tax.12

Traditionally, unmarried cohabitants were not in a recognized legal relationship to one another and were considered legal strangers. However, the law in some states has evolved so that in some instances unmarried cohabitants have some or all the rights of married persons.13 Of course, the requirements of the law must be met to receive the benefits thereunder, including, in some cases, registration of the relationship with the state. Some states permit unmarried cohabitants property rights by contract. Nevertheless, because terms of implied contracts are difficult to prove in court, unmarried cohabitants should define their arrangement with respect to support in a written agreement.14 Some states require such contracts to be in writing to be enforceable.15

Parents must provide for their minor children. One court has stated the duties of a parent with respect to a minor child as “care, control, love, protection, support and subsistence.”16 Generally, both parents are obligated to support their children, and one parent cannot waive the right of a child to seek support from both parents.17 Many states require a stepparent to support minor stepchildren, notwithstanding that the stepchildren have not been adopted by the stepparent, if the stepchildren lack basic needs or require public assistance.18 Further, a person who has assumed parental duties (a person standing in loco parentis) may also be required to support children for whom they have undertaken parental duties.19

Following are some planning suggestions with respect to managing the financial relationship between spouses or unmarried cohabitants that you may wish to consider before entering a new relationship. Before marrying or cohabiting:

  • Discuss your thoughts about money and its management with your future spouse or cohabitant. Many disagreements occur because of differences about money management and usage. Understand each other’s positions and determine in advance how disagreements will be resolved. Prepare a written agreement about money management (and amend it as necessary).
  • Determine how property and debts brought into the relationship by each party will be managed. Will they be kept separate? Will one member of the relationship support the other, and pay down the other’s debt? If one member of the relationship will be supported by the other, should there be rules governing this financial support? Will property brought into the relationship be comingled or held separately? What will be done with income from investments that belong to one (but not both) of the parties?
  • Determine the amount of financial responsibility each person will have for the other’s children (children of both must be supported by both).
  • Determine how household expenses will be paid. Who will be responsible? Will there be a mechanism to keep track of expenditures? If one person pays more than the agreed-upon share, will the other reimburse the excess amount in the future? Consider creating one or more separate financial accounts into which each person deposits their required contribution, and from which all agreed upon expenses will be paid.
  • Understand the tax consequences of financial transactions between the spouses or cohabitants.
    • Transfers of property between spouses, generally, do not result in an income tax20 or gift tax.21
    • Transfers between unmarried persons can be subject to income tax (for example, if appreciated property is transferred in satisfaction of an obligation owed) or gift tax (if property is transferred without the transferor receiving equal compensation).
    • Transfers can be direct or indirect. For example, if you pay an obligation of your unmarried cohabitant, you may have made a gift to that person. Similarly, if you provide support to an unmarried cohabitant, that may also be a gift. A person who satisfies the obligation of a non-spouse and exceeds the annual exclusion from the gift tax would consume lifetime gift tax exclusion to the extent that the amount paid exceeds the annual exclusion.22 Once a person’s lifetime gift tax exclusion is fully consumed, additional gifts over each year’s annual exclusion amount would cause a gift tax.
  • Put your agreement in writing. Some states will only enforce written agreements. Consult a domestic relations lawyer in your home state to understand how the law will apply to your agreement.

Property

Your rights to property while in a relationship with another depend upon the state in which you live. Broadly speaking, during your relationship, your property rights depend upon whether you live in a common law state or a community property state. Your rights to property may also depend upon whether you are married or not.

If you live in a common law state, generally, your rights with respect to property depend upon how that property is titled (that is, who owns the property). If you own property in your sole name, your spouse or cohabitant has no right to access or use that property (unless you allow it). You can give a spouse or cohabitant ownership rights to property in which you retain an interest. Common forms of combined ownership (collectively, co-tenancies) are tenancies-in-common, joint tenancies with right of survivorship and, only for married persons (although not allowed in every state), tenancies-by-the-entirety. Each form of co-tenancy has specific attributes defined by state law during life and upon the death of a co-owner.

If you live in a community property state and are married,23 you may have rights to property acquired during your marriage no matter which spouse owns the property. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Other states allow you to elect to apply community property law to assets that meet certain requirements.24 The community property law of each state is different and nuanced. To understand how the law of your state works, you should consult an attorney skilled in domestic relations law.

Generally, in community property states, assets acquired during marriage (known as community property) are owned by each spouse equally.25 Even if property acquired during a marriage is owed by one spouse alone, that owner spouse manages the property for both spouses and may owe a duty of loyalty and good faith when managing the community property of the non-owner spouse.26 Assets acquired before the marriage or by inheritance during the marriage are generally characterized as separate property27 and belong to the owner spouse. Each community property state has its own rules regarding what constitutes community and separate property and the duties owed by spouses to each other. If you live in a community property state, consult an attorney skilled in domestic relations law to understand the laws of your state.

If you move from a common law state to a community property state, property acquired while in the common law state may be treated as community property if it would have been community property had it been acquired in the community property state.28 If moving from a community property state to a common law state, community property may retain its characteristics as such in the common law state.29

Before relocating, you should consult an attorney in your prospective state of residence to understand the laws of that state before you move, and plan accordingly.

The law of a community property state may allow you to enter into an agreement with your spouse “transmuting” community property into separate property or separate property into community property.30 It is possible for separate property to be transmuted (even by accident) into community property. For example, moving separate property into a joint account with a spouse may convert the property from separate property to community property.31 If you live in a community property state, before changing title to property be sure that you are not transmuting separate property into community property unless you intend to. Consult an attorney in your state skilled in domestic relations law to understand the rules with respect to the transmutation of property.

If you are unmarried, but cohabiting with another, your rights with respect to the property of your cohabitant may be limited. Traditionally, unmarried cohabitants were not in a recognized legal relationship to one another and were considered legal strangers. However, the law in some states has evolved so that in some instances unmarried cohabitants have some or all the rights of married persons.32 Of course, the requirements of the law must be met to receive the benefits thereunder, including, in some cases, registration of the relationship with the state. Some states permit unmarried cohabitants property rights by contract. Nevertheless, because terms of implied contracts are difficult to prove in court, unmarried cohabitants should define their arrangement with respect to property in a written agreement.33 Some states require such contracts to be in writing to be enforceable.34

Following are some planning suggestions for families to consider with respect to property ownership and management.

  • State your intentions and define your rights. Consider entering into a written agreement defining your rights to property used by the family. Be clear about management and maintenance obligations.
  • For property that you own alone, have a plan should you become unable to manage such property. Consider creating a durable power of attorney. If you do not have a durable power of attorney, then your family may need to seek a court-appointed guardian to manage your assets. Going to court takes time and resources. A durable power of attorney allows you to appoint agents and successor agents to act on your behalf with respect to your property.
    • When you have a blended family, your agent could be your spouse or cohabitant, an adult child, another relative, or a trusted advisor.
    • Give careful consideration as to whom you name as agent under your power of attorney. For example, if you own substantial assets in your own name, on which your family relies for support, naming a child from a previous marriage to control those funds could cause friction in your family should those funds be needed to support your spouse or cohabitant (who is not that child’s parent) and that person’s children (who are not also your children).
  • Unmarried cohabitants do not have the same rights as married people. For example, if only one of the cohabitants owns the property in which the cohabitants live, the non-owner could be evicted by the owner. It is possible that tenant’s rights laws could give the non-owner some protection with respect to the living arrangement; however, as a non-owner, a falling out with your cohabitant could leave you homeless.
    • Before cohabitants live together, they should create rules for their living arrangement Those rules should be documented in a written cohabitation agreement.
    • A cohabitation agreement can protect the non-owner’s right to use the property (at least for some amount of time) should there be a breakup.
    • Remember, some states do not enforce cohabitation agreements, while others require them to be in writing.
  • The creation of a co-tenancy may be treated as a gift to the new owner. Whether the creation of a co-tenancy is a gift is determined by the type of property and state law. Creating a co-tenancy in real property is, generally, a gift at the time the co-tenancy is created. The same may not be true with respect to financial accounts. In some states a tracing rule applies, notwithstanding that both owners now have access to the account.35 In those states, a gift will occur only when an owner of the account withdraws more than the amount that the owner contributed to the account. In other states, a gift occurs when the co-tenancy in the account is created.36
    • Transfers between unmarried cohabitants may be subject to income tax (for example, if appreciated property is transferred in satisfaction of an obligation owed) or gift tax (if property is transferred without the transferor receiving equal compensation). Transfers can be direct or indirect. When one person pays the obligation of another person (and does not receive compensation for such payment), that is a gift. Be aware of the gift tax implications upon the creation of a co-tenancy or any transfer of property to an unmarried cohabitant.
    • Making gifts that exceed the annual exclusion amount (currently $16,000 per donee) in any one year would require the donor to file a federal gift tax return, even if no gift tax is due.
  • A tenancy-in-common and a joint tenancy with right of survivorship allow both owners to access the property during lifetime. However, upon the death of one co-owner the survivorship rights are different. With a tenancy-in-common one-half of the property belongs to the surviving owner while the other half passes pursuant to the deceased owner’s will or the laws of intestacy. With a joint tenancy with right of survivorship, the surviving co-owner receives the entire property by operation of law, and no part of the property passes pursuant to the deceased owner’s will or the laws of intestacy. Be sure to understand what property rights you are conferring when creating a co-tenancy. Consult an attorney in your state to understand the rules that apply to your property.
    • Convenience accounts are joint accounts sometimes created by an older family member with a younger family member as co-owner so that a younger family member can access the funds in an account to manage them and care for the older family member. If a joint tenancy with right of survivorship was created for the convenience of one of the owners (a convenience account), the entire property may pass under the will of the deceased owner.37 Because it can be difficult to prove a deceased owner’s intent following death, creating a convenience account may cause family discord following the death of a co-owner. Discord can occur when the surviving owner claims ownership of the entire account, thereby preventing it from passing under the decedent’s will to other beneficiaries. For example, a stepchild who claimed ownership over a convenience account that otherwise would have passed to the deceased owner’s biological children under the deceased owner’s will. Accordingly, it may be better to use other forms of property management, such as a durable power of attorney.
  • A tenancy-by-the-entirety confers rights similar to a joint tenancy but may also protect the asset from certain creditors. Only married persons can create a tenancy-by-the-entirety. Because a tenancy by the entirety is a non-severable tenancy (both spouses, acting together, are required transfer the property) a creditor of one spouse cannot force the division of the asset to satisfy that creditor’s claim. Of course, a creditor of both spouses can attach the property. State laws vary with respect to the creation of tenancies-by-the-entirety. Some states don’t allow their creation, others allow only real property to be owned this way and other states allow any property to be so titled. Consult an attorney in your state to understand how the rules with respect to property ownership will apply in your case.

Other Matters

Healthcare Decision Making: According to the National Institute on Aging,

Advance care planning is not just about old age. At any age, a medical crisis could leave you too ill to make your own healthcare decisions. Even if you are not sick now, planning for healthcare in the future is an important step toward making sure you get the medical care you would want, if you are unable to speak for yourself and doctors and family members are making the decisions for you. . . . Advance care planning involves learning about the types of decisions that might need to be made, considering those decisions ahead of time, and then letting others know—both your family and your healthcare providers—about your preferences. These preferences are often put into an advance directive, a legal document that goes into effect only if you are incapacitated and unable to speak for yourself. This could be the result of disease or severe injury—no matter how old you are. It helps others know what type of medical care you want.38

Who will communicate with your healthcare providers if you are unable to? States have enacted laws that allow you to create a document in which you can name one or more agents to communicate with your healthcare providers. These documents have various names, such as “healthcare power of attorney”, “healthcare proxy” and “healthcare declaration” (for ease of reference, such documents are referred to as healthcare documents). Whatever its name, a healthcare document allows you to indicate your preferences and to name a person (an agent) to communicate with others regarding your healthcare. Failing to name such a person in your healthcare document can cause chaos, or at least confusion. In a blended family the lines of communication can be especially difficult, particularly if your children and your spouse or cohabitant disagree with respect to your care. In fact, if you and your cohabitant are not married, your cohabitant may not be considered your next of kin and, unless named as agent in a healthcare document, may be excluded from discussions about your healthcare. Consider the following with respect to naming an agent in a healthcare document,

  • When you have a blended family, your agent could be your spouse/cohabitant, an adult child, another relative, or a trusted advisor.
  • Give careful consideration as to whom you name as agent under your healthcare document. For example, your spouse/ cohabitant may disagree with your children regarding your care. Choose an agent who will follow your wishes and be sure to have an alternative agent in place in case the person named as primary agent cannot serve.
  • Consider communicating your decision to those members of the family who are sufficiently mature to understand it.

End of Life Decisions: As with healthcare decision making, failing to clearly state and to designate someone to communicate your end-of-life decisions can lead not only to chaos and confusion, but also to heartbreak. States have enacted laws that allow you to create a document in which you can state your decisions regarding end-of-life and can name one or more agents to communicate those decisions to your healthcare providers and others. Although these documents have many names, for ease of reference, they are referred to as a living will.

There have been famous cases where families have spent years in court litigating over an incapacitated person’s decision to withhold life sustaining care at the end-of-life. These fights are tragic. However, without clear direction stated in your living will, your family members may fight to impose their own judgments on your care. Recall the famous case of Terri Schiavo, in which a young woman who ultimately spent fifteen years in a permanent vegetative state, was the subject of a seven-year court battle between her husband (who was legal guardian) and her parents over the removal of life-sustaining treatment.

Without a living will, non-family members, such as an unmarried cohabitant, could be excluded from decision-making, potentially excluding from the process the person who, perhaps, best understands your wishes.

Finally, without a clear statement of your intent, it is possible that your family may be divided over decisions regarding your care, causing an irreparable rift over what is inevitably a very difficult and often heart-wrenching decision. Imagine if your spouse agreed to end life support while your children vehemently opposed it. That decision could tear the family apart.

The same considerations apply to naming an agent in a living will as apply, as outlined in the section immediately above, when naming an agent under a healthcare document.

Stand-by Guardianship: If your spouse or cohabitant is not also a parent of your children and has not adopted them, even though your children may consider your spouse or cohabitant to be a parent, your spouse or cohabitant may not be able to act as their guardian should you be unable to do so. Many states allow you to name a stand-by guardian for a minor child should something happen that makes you unable to care for that child.39 Although the child’s other parent could be guardian, sometimes the other parent is not able to assume that role; for example, because that parent has died or has had parental rights terminated by a court. Think of all the things that might prevent you from being available to your child, from incapacity to a long hospital stay. A stand-by guardianship could ensure that your spouse or cohabitant is available to care for your child.

Define the Rules: Every relationship has rules. Consider defining the rules for your relationship. When making the rules consider involving children who are mature enough to participate in the discussion. Of course, not all rules should necessarily be discussed with children (such as property rights and support). Nevertheless, consider stating clear operating rules for the family, such as “your stepparent is just like a parent”, or responsibility with respect to chores. Other rules could consider, who may join the family business and the requirements to do so or create a dispute resolution process. Each relationship is different, so each family’s rules will be different. Write the rules down in a “family constitution”. Perhaps, have children who are sufficiently mature, signify their consent by signing the document.

Seek Assistance – Define Your Relationship

Family relationships are complicated. This is especially true when two different families are blended together and there are children from prior relationships as well as children from the current relationship. It is important to understand your responsibilities in any relationship and, should you wish to deviate from the basic obligations required by state law, to make a binding agreement defining your relationship. An attorney skilled in domestic relations law can help you understand your rights and responsibilities and what can be changed by agreement and what cannot.