Family financial planning is complex by definition. Throw in ex-spouses and children from previous marriages, and you are facing a 1,000 piece puzzle where a wrong move can spell a financial disaster or a legacy ruined.
And yet, many blended families resist the money conversation. One common reason: nobody likes thinking about the day they die, and everyone would rather plan a fun vacation. The other reason, though, is that even the most amicable blended families must manage a delicate web of blood ties and competing interests. And so, families just assume that everyone gets along well enough to sort things out on the back end.
Unfortunately, leaving things to chance can lead to ugly court battles and much disappointment on all sides.
What can you do today to avoid that?
Decide what you want.
Many people in blended families feel torn between doing what’s fair and what’s right in their mind. There are hundreds of books written about philosophy, so I won’t go into detail about what’s right, equal, or fair.
I do, however, believe that it’s important to know what you want. It makes sense to listen to other people’s perspectives and consider their input, but don’t feel as though you have to bend to their wishes. After all, these are your assets. You have worked hard for them, and you deserve to see them distributed in a way that aligns with your values.
Remove your ex-spouse’s name.
You may have had wonderful years in a previous marriage, followed by an amicable divorce, with a big happy blended family that celebrates every holiday together. In that case, you may want to provide for your ex-spouse in your estate plan.
However, chances are that the split has left some hurt feelings and bruised toes.
In that case, you should go through all of your accounts, property documents, and estate planning documents to remove your ex-spouse’s name from them. This is especially important for retirement accounts that must distribute the assets to the stated beneficiary, not the person mentioned in your Will. You must also be careful about removing your ex-spouse as a joint owner from all of your bank accounts. Otherwise, those accounts will automatically become theirs on your death.
Think carefully about commingling.
Texas is a community property state, which means that property and assets acquired during the marriage will be considered joint property of the spouses. However, all property acquired before the marriage is separate property of each individual, unless they mutually decide to commingle it.
While it may be tempting to commingle everything with your new spouse, consider the consequences of that decision carefully. Having some assets outside of the joint property can give you more control over who should inherit them after your death.
Communicate.
Money and legacy conversations are hard on the best of days. It’s tempting to skirt around the specifics in the hopes of avoiding hurt feelings and flaring tempers.
Unfortunately, this kind of avoidance will merely delay the inevitable. Even if your blended family gets along well (as far as you know), you should not assume that everyone will magically be on the same page after you pass.
So, think about your wishes. Then, talk to your family. There is no requirement that you must share every last detail of your Will, but you need to make sure that you and your spouse share an understanding. It’s not uncommon for one spouse (typically, the wife) to think that the estate should be split equally between the children on both sides, while the husband believes that his wife’s children from a previous marriage have their own father who should provide for them.
You may also bring your children into the conversation, especially if they won’t be getting access to “their” assets immediately. That can help avoid the feelings of being cheated or shortchanged by the step-parent.
Get a prenup (or a postnup).
The best time to sort out the intricacies of estate planning for a blended family is before the marriage. A prenuptial agreement can address all manner of things, including how your estate should be handled. You can specify what you would want for your spouse to receive, and even make a mutual guarantee not to contest each other’s estate plans.
If you are already married, consider a postnup. A postnuptial agreement can accomplish the same goals as a prenup, the only difference being timing. And, if you are in a domestic partnership, a domestic partnership agreement could be the right tool for you to document a shared understanding.
In the end, it’s important to get these types of issues on the table sooner rather than later, and to work with an experienced financial planner and an estate planning attorney to get the documents in place.