The finance guide for blended families

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Setting up a blended family - where one or both partners have kids from previous relationships as well as children together - is expensive.

Blended families need all the things that a traditional family has plus more for the stepchildren. For a start, there will be higher day-to-day living costs, perhaps a bigger house and an updated estate plan that involves more insurance for unforeseen events.

There is a lot to get right in a blended family, besides the relationships and juggling a busy calendar.

finance guide for blended families

While it might take years to get the family dynamics right, you need to set up the finances as soon as you can. You never know what will happen and you want to try to keep family relationships intact.

"The most important estate plan is not your own, it is someone else's," says Peter Bobbin, a lawyer at Coleman Greig who specialises in superannuation and taxation.

For example, says Bobbin, it could be your father who is married to his second wife (your stepmother). "What has he done or not done such that if anything happens to him it will financially impact on the wealth that leaves the family?"

Blended families make up around 6% of Australian families and are becoming more common as people enter their second or third relationship. All families have the potential to experience conflict, but blended families moreso.

Each partner may have their own blood family that they want to look after, prioritising them - especially if they are vulnerable - over other family members such as stepchildren.

There are plenty of financial tensions among blended family members and their ex-partners. One scenario is that they take up with a new partner shortly after leaving their previous relationship and they don't finalise a settlement and it drags on for years. This is complicated for the new spouse.
Bobbin says that both sides of the blended family - the blood relatives as well as the new partner with stepchildren - need to get the checklist right.

"The risks run both ways."

Often there are financial considerations at every turn. If you buy something for your child with your new spouse, how does that play out with your children from the earlier relationship or your new spouse's own children from their earlier relationship.

If you are paying child support while married to someone else with kids, it can be a sore point for your new partner. Or your former spouse may be worried that their money isn't always being spent on their kids but on your new partner's kids.

Ideally, everyone needs to be clear about the finances and know what they are entitled to.

Before things get too long term, draw up a prenup with your partner that outlines what each of you own and bring to the relationship. Binding financial agreements are particularly popular for second marriages where a partner has been through the ravages of a property settlement already and they want to protect assets so that they can pass them onto their children from the first marriage.

In the event of a break-up, it makes it easier to retain assets such as the family home, inherited wealth, pre-owned assets for children from an earlier marriage and a family business. Treasured sentimental items such as jewellery, antiques and paintings can be quarantined. Having a binding financial agreement is easier than going to the Family Court, which can be expensive and take years to settle.

"Prenups - known in Australia as BFAs or binding financial agreements - work on relationship breakdown but not on death," says Bobbin.

The agreement may contain joint or separate living expenses, too. For example, with joint expenses, you could outline that during the relationship each person will contribute a certain amount to living expenses, the mortgage or rent, insurance, car costs, council rates, utilities and holidays.

Or you outline that one person is responsible for costs such as private school fees. You don't need to be married to draw up a binding financial agreement. They also work well for de facto and same-sex couples. It is never too late to draw up a binding agreement outlining the assets you want to retain.

You can do it before, during (mid nuptial) or after (post nuptial) the relationship.

Binding financial agreements are fairly watertight, as they have been around for 
more than 20 years and there is now a large body of legal precedents that provides them with certainty. They can offer better protection than most family trusts, depending on the circumstances.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.

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