More than 40 million Americans are in a second or third marriage. Here's how to make sure you plan properly for your step family.
According to a recent study by the Pew Research Center, today there are more than 40 million Americans who are living in a second or third marriage. The step family has, for all intents and purposes, become as much the norm as the traditional family.
Most of us hope that it's for life when we get married. Yet we are all too aware that a great many marriages end in divorce. Even those who make it through their younger years with their marriages intact are no longer immune to divorce. In fact, the past decade has seen a surge in gray divorce. Today, approximately one in four divorces involves couples over the age of 50. Nobody wants to plan to fail. But failing to plan often has far worse implications.
FINANCIAL AND EMOTIONAL CHALLENGES
A recent study conducted by UBS found blended families face significantly greater wealth management concerns than their traditional counterparts. Not only are they faced with larger direct expenses (e.g., food, clothing and education) associated with providing for more children from multiple marriages, but those expenses tend to have a far-reaching adverse impact on long-term retirement savings.
It's certainly not the most romantic subject of conversation, but it's critical for both spouses coming into a blended family to lay all their financial cards on the table — fully disclosing any assets, income, debt or other commitments such as child support. Talk honestly about your attitudes towards spending and saving. It's not at all uncommon for both spouses to enter a blended family with very different or even diametrically opposed financial convictions. Finding common ground around important wealth management issues early on will be essential to avoiding major conflict down the road.
CAREFUL ESTATE PLANNING
While solid financial management for blended families requires openness and honesty, discussing the newfound complexities associated with estate planning necessitates a great deal more tact. Safeguarding your loved ones' financial futures and preserving family harmony can be a difficult balancing act fraught with mistrust and uncertainty. You want to ensure you provide for your new spouse in a way that's responsible, without raising any fears among your heirs that he or she might hijack their inheritance.
It can quickly become a very awkward and contentious situation if a host of contingencies aren't carefully considered and planned for. For example, a traditional estate plan might not provide an inheritance to your children from a previous relationship until the death of your new spouse. However, if the spouse is fairly close in age to your adult children, that means they could effectively end up being disinherited.
One way to solve this dilemma is by securing a life insurance policy on the spouse with children from a previous relationship — provisioning those assets to be distributed to the children upon their parent's death, while preserving the rest of the estate for the surviving spouse and/or new family.
Of course, when both spouses bring nearly equal resources to the table in a second marriage it greatly simplifies many of the challenges. A simple prenup stipulating that each will leave their personal assets to their own children should suffice. Keep in mind, however, that any structured separation of assets will not apply when it comes to health care costs. Assuming you have sufficient resources, you cannot refuse to pay for the cost of caring for a spouse. Long-term care insurance options should therefore be carefully explored in these types of situations.
DON'T WAIT
Simply avoiding discussing the inevitability of death and taxes is by no means a solution. It's merely an open invitation for future conflicts, ongoing ill will and potential litigation between your current spouse and your children from previous relationships.
Take time to talk with your financial adviser about your unique issues, concerns and objectives regarding individual family members. He or she will make sure all your beneficiary designations accurately reflect your desires, and work with you to craft an estate plan for your blended family that helps ensure an orderly and equitable distribution of assets among your loved ones.
Thomas Mingone is managing partner at Capital Management Group of New York.
