Solutions for Stepfamilies
By Monica L. Braun, J.D.
Roughly half of all Americans are currently involved in some form of stepfamily relationship, according to the Stepfamily Network, a nonprofit organization providing national support and resources for stepfamilies. The blending of families that results from remarriage often comes with a unique set of challenges. When declaring an encore "I do" and a new family is created which is composed of two sets of children, the emotional and financial needs of each group must be reconsidered. For those couples who are trying to balance a stepfamily, here are some financial tips to consider as you enter a union and prepare to live happily ever after.
If youíve become accustomed to living on a single income, at first glance it may appear that your finances will improve considerably by adding a working spouse to the picture. But before you go out and buy that new car, consider the cost of daycare for additional children, potentially higher housing costs, higher taxes and a larger food budget. As a first step, carefully review both sets of incomes and expenses and create a combined family budget.
Some blended families choose to separate assets and liabilities, while others opt to combine them. While one option may work well for some, it may not be the best solution for you. The most important thing is to determine your financial goals and make a decision together about how your finances will be handled so there is no miscommunication. I often point out to my clients that as their children get closer to college age and theyíve amassed a savings in their education accounts, it may be unwise to combine those assets with those of a new spouse with younger children and fewer assets.
The same may be true with liabilities. In some cases, it might make sense to combine your debt to reduce a payment, but you should carefully consider each situation before making a consolidation decision.
Agreeing on short- and long-term financial goals should be a high priority when entering into a blended-family marriage. Since the union may be occurring later in life, you may have less time to work together to save for important milestones like retirement. A financial advisor can offer valuable resources and help you set goals based on your new familyís situation and determine a plan of action to reach them.
If either set of children in your stepfamily is a benefactor of child support payments, you and your spouse should decide how the funds will be factored into the familyís budget. If you donít make payments for your childrenís daily living expenses, consider making systematic contributions to an investment plan for goals like their college education.
Of course, making regular contributions can help you reap the benefits of dollar-cost averaging -- a simple but powerful long-term strategy where you automatically buy more shares when the market price is low and fewer shares when the market price is high. Even though this strategy doesnít guarantee a profit or protect against loss in declining markets, it can decrease your average cost per share over time if you continue investing throughout market fluctuations, including periods of low market prices.
Estate planning is a big concern among my clients today. Generally, estate planning can be rather complicated for anyone. However, estate planning for blended families can be even more challenging, making it especially important for you to address these issues early Ė even if youíre still young and healthy. The traditional lines of inheritance donít necessarily apply to situations where remarriage occurs. A major goal of estate planning is to defer paying taxes as long as possible. But if you are part of a stepfamily, you may find that by prolonging estate tax payments, you short-change your childrenís inheritance. Hereís why: since the unlimited marital deduction allows people to leave assets to their spouses, taxes can be deferred on estates of qualifying sizes until both partners are deceased. If you are in a blended marriage, donít have your estate set up properly and you are the first to die, itís possible that your assets will end up with your spouseís children Ė not yours.
Estate planning is something that should always be done with professional help, and itís especially true for stepfamilies. Regardless of the complexities involved, blending families and watching them grow and learn from each other can be a truly rewarding experience. Since no one has all the answers, donít be afraid to get help along the way. Sound financial advice can go a long way to help your newly formed union launch a new beginning.
For more information on financial planning, products and services, you can visit the American Express Web site at www.AmericanExpress.com or contact Monica L. Braun at: (818) 549-1615, 100 West Broadway, Glendale, CA 91210-1202.