Talking about budgeting and money values as early as possible can help prevent arguments.emma/iStockPhoto / Getty Images
From tax planning to insurance coverage, newly blended families have several financial decisions to review, but not everyone is ready to jump in.
In many blended families, joint planning increases the longer couples are together, says Jennie Weeks, senior financial planner and chartered financial divorce specialist with Springtide North Wealth Advisory at Assante Financial Management Ltd. in Vancouver.
At the outset, however, many don’t seek out their advisor to say, “We’re a blended family and we want to come and talk to you about this,” she says.
Some couples don’t discuss their financial situation or estate plans – with advisors or each other – early enough in the relationship, which can mean missing out on certain strategies.
“You’ve already gone so far in your life and had different finances, and it’s very difficult to have conversations about how to blend your money,” Ms. Weeks says.
Advisors can start by ensuring clients with new partners have filed their income tax returns together and, if they don’t have a cohabitation or prenuptial agreement in place, walking them through the legal implications of making financial decisions with another person.
Talking about budgeting and money values as early as possible can also help prevent arguments.
A next step should be to suggest that clients update their wills and discuss life insurance solutions for estate planning to ensure they reflect how the client would like assets to be distributed.
“Insurance is a really important part of a blended family,” Ms. Weeks says.
“You’re going to look at beneficiary designations … what are the things you want to pass to your spouse, what are the things you want to leave to your children, and where does insurance come in? Those are the top three for the short term,” she adds.
Matt Morrish, financial advisor with BlueShore Financial in Vancouver, says entering second marriages, new relationships, or blended families constitute a material change that sparks a new financial planning cycle for clients.
At the outset, advisors working with newly blended families need to know whether clients want to combine finances or keep them separate. That will likely be influenced by the client’s financial circumstances and previous relationship, he says.
Mr. Morrish has seen both examples in practice in recent weeks: an older remarried couple opted to keep their finances separate, and another family sharing responsibility for young children with their former spouses was more willing to merge their finances.
While either method can work, he says, open communication and a willingness to merge finances can create a more cohesive strategy.
A new family budget is a great starting point that can lead to a new financial plan, he says, with both partners aware of where the money’s going, including spousal or child support and saving for education.
Tax-advantaged strategies such as a spousal RRSP or pension income-splitting are also easier to maximize when there’s a joint financial plan, Mr. Morrish says.
Elke Rubach, certified financial planner and president of Rubach Wealth in Toronto, says her role as an advisor for clients in newly blended families is about normalizing the money conversation and setting new ground rules.
“I really want to help families write their next chapter, and it has to reflect who they are now, not who they were,” she says.
Meetings with clients in newly blended families should be quarterly to start, she says. A new financial plan should address both parties’ income, spending, savings, investments and properties as well as their needs and behaviour, including details around money set aside for kids’ expenses, custody and vacations.
Clients also need to revisit wills and ownership of corporations or partnerships.
Through the process, advisors need to explore the relationship with ex-partners if there are minor children, and include older children in the conversation.
“Blended families need to also consider backgrounds and financial philosophies, but that’s where advisors play a massive role,” Ms. Rubach says. “My job is to find the pitfalls, the blind spots for them.”