2/15/2013 6:30 PM ET|
4 money traps of blended families
The financial entanglements that can come from remarriage can turn once-simple issues into potential landmines.
Blended families are on the rise -- and so are the pitfalls that can come with mixing family and money.
Arguing over how much to spend on different children or feeling frustrated by an ex-spouse's financial role are common issues for the 65% of remarriages that involve children from a previous marriage, according to the National Stepfamily Resource Center.
Forewarned is forearmed. Blended families can use some expert advice to prepare for the financial challenges that lie ahead. Here's what the experts advise:
One of the most contentious issues facing blended families is child support. According to the U.S. Census Bureau's latest statistics, roughly $35 billion in child support went unpaid in 2009. The average due to dependent children was $5,960 annually, yet only 61% of that money was actually paid. Custodial parents who receive child support get only about $300 per month on average.
"Parents initially see child support as a fixed number that never goes down and may actually go up," says Mary Gresham, a clinical and financial psychologist in the Atlanta area. She notes that the downturn in the economy has left many parents who owe support either unemployed or making less, which can alter the lifestyles of everyone involved. "Their financial situation deteriorates after the divorce," she says. "And if they seek a support modification, the custodial parent (along with the new stepparent) has to find a way to make up the lost dollars . . . and that can cause a lot of resentment between ex-spouses as well as relationship and financial stress for new spouses."
Blended families applying for college aid often run into major obstacles. "It gets tricky very quickly," said Mark Kantrowitz, the publisher of FastWeb.com and FinAid.org. "Children from blended families are oftentimes less likely to go to college and graduate because they are used as a weapon to hurt the other parent," he says. Marital status and residency, as well as whether a public or private college is being considered, can dramatically increase the complexity of financial aid calculations.
"Many parents are caught by surprise because they don't know how the process works, says Cindy Kohlman, the associate vice president of Financial Aid Experts. "If, for example, the custodial parent has remarried, the stepparent's income will be included in the calculation, which can reduce the amount of federal aid a child receives. (However), an unmarried custodial parent may in fact be eligible for a larger amount of federal aid."
Both Kohlman and Kantrowitz agree that selecting one of the 250 schools that require the noncustodial parent to complete a "profile form" can be a major challenge for blended families. Some noncustodial parents are unwilling to cooperate for fear that divulging information about their income may prompt an ex-spouse to seek more support.
Estates and inheritance
Blended families must take extra precautions to do proper estate planning. "It's easy to accidentally disinherit your children," says retirement coach Christine Moriarty. "A family cottage or prized asset can easily make its way from one family's hands into another's if beneficiary designations and trusts aren't well documented and kept up to date."
Bud Hebeler, the founder of AnalyzeNow.com, suggests using a qualified terminal interest in property, or QTIP, and other trust documents to protect your children and assets. A QTIP trust can allow a stepparent to use an asset such as a home during his or her lifetime, but upon death, the asset passes on to the biological children instead of the stepparent's family.
"A friend's second marriage ended in divorce," Hebeler recounts, "And her second husband would have left with everything had the right estate planning not been put in place."
Hebeler offers this advice to those considering remarriage: "Tabulate and document individual assets and values before the wedding. It can go a long way to protect yourself and your family if things don't work out and property needs to be split back up."
Holidays and family traditions
Every year, many blended families run into the problem of figuring out how to visit multiple households on Thanksgiving, Christmas and other holidays. Holidays and family traditions, such as annual Labor Day reunions, often go out the window when you begin blending families.
"The holidays are supposed to be perfect, with lots of time spent together . . . but it's not always possible based on visitation times and blended family finances," says Moriarty.
Holiday visits can also be a perfect setup for sibling rivalries and relationship stress. Whether because a grandparent won't accept the new family and buys more presents for some kids than for others, or because an ex-spouse lavishes a child with presents to win affection, the holidays can quickly become anything but a season of cheer. "Sometimes there just isn't any flexibility, so blended family parents have to release old expectations and traditions and focus on creating new ones based on the things in their control: their attitude and emotions," says Gresham.
Planning can put problems to rest
If the major financial landmines faced by blended families aren't addressed, children are likely to witness more fights and arguments about money. Poor planning can also result in resentment among biological parents, stepparents and siblings.
By preparing for these situations and understanding that the life of a blended family may be more complicated than that of a traditional family, parents can avoid some of the major pitfalls associated with blending family and money. And doing so can help ensure that the children don't lose out.
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Regarding Financial Aid:
My parents divorced when I was about 4. Dad paid no support. My mom found my now step dad when I was 15. They had 3 kids. Thank goodness my mom stayed unmarried until I finished school so I did get some aid being that only her tax return was used and my bio dad was out of the picture. Had I included my step dads income I wouldnt have recieved anything.
I think its unfair to use the step parents income in determining aid to the non bio child. For one, your own parent doesnt have to pay for schooling if they dont want to, why would the government expect a step parent to include thier income??
I think that we are putting way too much emphasis on the expenditure side of the holiday and not enough on the intimacy side of the celebration. We don't have to take all our family to see our sister 100's of miles away, instead we can organize a very nice day at home with our own immediate family with tasty food and a little but meaningful gift for each one. The airports, the flghts, the airplane tickets and all that is involved with the traveling part is something to be feared and to keep away from. I think mom, the kids, and a few close friends make a naturally good bunch to convive with...
I agree with a lot of the thoughts by the author. Before my wife and I got married, I explained to her that we will keep separate checking accounts. She is responsible for certain household bills and I am responsible for certain household bills. After we each take care of our responsibilities, the left over money is our own to do as we please. This way, if I want to go spend some money on my son's, she really can't say anything about it as I have taken care of my household responsibilities. She does the same for her daughter and I don't say a word about it. Know that I full access to my wife's checking account and she has access to mine. This way there is no secrets between us. It is full disclosure. Now, this may not work for a lot of families out there, but it works for us. With regards to estate planning. One thing that needs to be looked at and planned for is the house. Where I live, so long as my ex wife has custody of my sons and if something were to happen to me, because my sons are minors, the ex wife (legally) has a vested interest in the home that my current wife and I own because it is considered an asset. So, to combat this, we sought out an estate attorney for advice. With his advice, my sons inheritance is taken care of through life insurance money and it is put into a trust fund. This way, my ex wife can not stake a financial interest in my home and since it would go into a trust fund (overseen by my sister) she can not just take the money and spend it at her discretion. My wife keeps the house free and clear.
I STRONGLY RECOMMEND that if you are a blended family and find yourself in this situation, or one similar, to seek out the consultation of an estate attorney and plan accordingly. The absolute last thing I want is for my ex wife to come in and get any kind of control over the house my wife and I currently own.
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