Managing money with your spouse is a challenge by any measure, but when you merge two families under a single budget, it can be harder still to strike a balance. Harder, but not impossible.
Blended families bring to the table a mix of assets and debt, established careers, and firmly entrenched financial habits — not to mention kids from a prior relationship. But they also bring life experience and a desire to avoid past mistakes.
To create a fully functional household, money coaches say couples who are tying the knot for a second or subsequent time must be open and honest with each other about their assets. And they must take steps to align their values and vision. (Learn more: New stepparent checklist)
“The biggest challenge is when blended families try to figure it out as they go and they don’t have those financial conversations in advance,” said Deborah Price, chief executive officer and founder of The Money Coaching Institute in Petaluma, California. “They just decide to wing it because they’re in love, but then they later find out that their values clashes are so huge that they are very difficult to overcome.”
A good starting point for couples looking to merge their households, especially those in which one or both parties have children, is a prenuptial agreement, said Price.
A prenuptial agreement is a legal contract that spells out which premarital assets and debts will remain separate and which (if any) will be combined. That includes real estate, brokerage accounts, retirement funds, and life insurance policies. It also specifies what each person’s property rights are, should the marriage end in divorce.
“It’s not about what you’re going to get if the marriage should dissolve, but how you are going to take care of each other,” said Price. “If you love this person today, you don’t want to see either party treated unfairly.”
A prenuptial agreement also protects your biological children, ensuring that your kids will eventually inherit all or part of your premarital assets, if that’s your intent. (Learn more: Second marriage finances )
Just don’t put the discussion off until the last minute. Price said many couples delay the all-important prenuptial talk until weeks before the wedding because it’s uncomfortable. But one party may then feel forced to sign a contract they don’t believe is fair, simply because they don’t have time to negotiate without delaying the wedding or causing a fight.
“It happens all the time,” said Price. “A prenup simply provides the tool to avoid the kind of ugly divorce that people don’t recover from, either financially or emotionally.”
To merge or not to merge your money
Paying the bills in a blended family can be problematic, too, especially if one party earns significantly more than the other.
Some couples create a shared account for joint expenses, while others choose to pay for living costs based on a percentage of earned income. Still others opt to keep their money separate and divvy up the bills as equitably as possible. (Learn more: Sharing money in marriage: The mutual payoff )
There’s no single solution. Any money management system can work, as long as you practice full disclosure. Share your bank statements so you are both aware of your existing bills, credit card balances, loan payments, and any alimony or child support you pay or receive. Also be sure to disclose the amount you have saved in retirement funds, brokerage accounts, or 529 college savings plans for your kids, whether or not you intend to share those savings.
Financial secrets are not your friend.
“Even if you have debt going into a marriage that’s not going to be assumed by the spouse, it doesn’t mean it won’t financially burden the relationship,” said Price.
Price also urges households in which both partners have children from a prior marriage to be conscious of creating a budget that is fair to the kids. (Learn more: Budgeting essentials )
“The couple may decide to share fixed expenses, but if one spouse makes more money than the other, then his or her child may get all the good stuff and the other child may feel like a ‘have not,’" she said. “That is very damaging to a child. The parents need to agree on creating a values-oriented spending plan so they blend their families economically.”
Discuss your financial philosophy
We all have baggage when it comes to money management. Some need an oversized safety net to feel secure, perhaps because their parents were reckless spenders or they experienced a bout with unemployment. Others have a “you can’t take it with you” mentality, perhaps because their prior partner was a compulsive saver.
Parents, too, have different philosophies about how much to give their kids for allowance and whether they want their children to pay their own way through college. That gets tricky in a blended household.
You don’t have to agree with your partner’s spending and saving mindset, but you do need to discuss where you’re coming from financially, why it matters to you, and what you expect from your spouse. You also need to attempt to meet in the middle.
Discuss future expenses
If one or both of you have children from a prior marriage, discuss who will pay for summer camp, braces or other health care needs, and college expenses.
Will you establish a rule that any new major expense over a certain amount, say $500, must be discussed?
What would happen if one spouse loses a job or is forced to leave the workforce, even temporarily, because he or she is too sick or injured to work? Can the other partner cover the bills and still maintain your combined standard of living?
“Those unexpected life events can really throw marriages into a tailspin,” said Price. “No one ever thinks it’ll happen to them, but it can.”
More than one in four 20-year-olds today will become disabled before reaching retirement age, according to the Social Security Administration.1
Disability income insurance can help protect a portion of one’s income against such risk. To determine how much coverage you may need click here.
Set shared goals
While it’s important to discuss the assets and debts you bring to the marriage, Price said it is equally important for couples to focus on their future, including short- and long-term financial goals.
Will you have more children? When do you hope to retire? Will you need to upgrade into a larger home? Are you contemplating a career change? Might one or more of your parents move in with you as they age?
“You need to have a really clear, healthy conversation about the best way to create this family unit that builds a future together,” Price said. “It should come from that place of what’s our vision and what are we hoping to achieve as a family together, both tangible and intangible.” ( Learn more: Setting financial goals )
If stepchildren are involved, or you add new children to the mix, some financial advisors suggest couples discuss their plans for leaving an inheritance—if any. Being forthright during your lifetime can prevent infighting among siblings and stepsiblings after you are gone, which can fracture even the happiest homes.
Revisit the plan
Finally, household budgets are never set in stone. Price suggests couples schedule regular check-ins to revisit their money management system as they go, especially early in the relationship when they’re working out the kinks.
When families join forces under one roof, they get a bigger support system and, most often, a little more wiggle room in their budget. To blend their finances successfully, however, they must be candid about their assets and debt, financial philosophy, and vision for the future.
“If you focus on keeping everything as fair and reasonable and equitable as possible, you are going to have the best outcome,” said Price.
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1 Social Security Administration, “Publication No. 05-10570,” Jan, 2017.