When second and third marriages result in the blending of two families, a complicated financial picture may emerge. Couples entering a second or third marriage bring with them ex-spouses, children from previous relationships and financial responsibilities, assets and liabilities that may carry deep emotional attachments. Addressing these delicate issues from the onset will help newly blended families avoid a rocky road of financial disputes in the future. Following are some key points to consider.
Communicate
Disagreements over finances are a common source of marital discord. Spouses enter a marriage with different financial assets, responsibilities and spending habits. It is important that both parties take an honest assessment of the new family dynamics their union will create and identify potential challenges that may arise in the future should blended family members fail to get along or should the death of one spouse result in a change in a child’s inheritance. Tackling these issues early on may help to lay the foundation for a financially harmonious future.
Draw Up a Prenuptial Agreement
Prenuptial agreements that establish a plan for the division of property in the event of divorce may not be the most romantic topic for couples planning a long future together. However, they are one of the most critical instruments in the blended family toolbox, especially when it comes to protecting surviving spouses and safeguarding inheritances for one’s children. A prenup can help couples begin a dialogue of who is coming into the marriage with what and allow both parties the opportunity to articulate and agree on their individual and combined concerns, goals and responsibilities before they actually say “I do.”
Review and Update Estate Plans
When engaging in open dialogue, couples should document the assets they bring into the marriage along with their current market value. In the event of a divorce, these items will become the subject of property divisions and a source of contention among surviving family members following the death of one or both spouses. A new marriage may also require changes to one’s legal name and updates to the beneficiaries on wills, insurance plans and retirement accounts.
Create a Trust
Putting assets in trust can accomplish several goals, not the least of which includes shielding assets from creditors and the very public process of probate after a spouse’s death. For the blended family, a trust provides the grantor the ability to direct how assets should be distributed and shared among a surviving spouse, biological children and stepchildren. It may also contain specific language spelling out how beneficiaries may or may not spend inherited assets.
Because there is a broad array of different types of trusts, families must seek the counsel of experienced advisors to ensure the structure they select meets their short- and long-term needs and goals. For example, the use of a qualified terminable interest property (QTIP) trust enables grantors to provide lifetime income to surviving spouses while preserving underlying trust assets for the benefit of their children. Another option is to fund an irrevocable life insurance trust (ILIT), which purchases a life insurance policy and becomes both the policy holder and beneficiary. In turn, the policy’s death benefits pass into the trust free of both federal estate and income taxes.
Estate planning for blending families is a complex endeavor that should be conducted under the guidance of experienced financial advisors who can help develop a plan that addresses the unique tax, financial and emotional implications of one’s decisions.
About the Author: Kathleen Marteney, CRPC®, is a financial planner with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with PWA Securities, LLC (PWAS). She can be reached at (800) 737-8804 or via email at info@provwealth.com.
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Kathleen Marteney is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
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Updated on June 24, 2024