First comes love. Then comes marriage, and then the second marriage, and the increasingly common blended family, and finally the unwelcome financial surprises.
Blended families face special financial challenges. Should you sign a prenuptial agreement? What if your spouse has saved for their children's college education, but your kids have no college fund? Maybe your kids are accustomed to expensive extracurricular activities, and your spouse's aren't. How can you unite a blended family when it comes to money?
As financial coaches, money managers, and authors, my wife Mary and I discovered those challenges firsthand when we married in 1994. But we also found that compromise, negotiation, and a sense of humor helped us through all the money debates and difficulties. Try a few of the following strategies, all of which we've used, to bring a little financial harmony to your blended home:
â€¢ Skip the prenuptial agreement. Don't begin your engagement by trying to figure out who gets what if it doesn't work out. That's like looking for the exit before you get through the front door. Most people don't need a prenuptial agreement, and demanding one is asking for problems. A few years ago, we read about a California attorney who specialized only in prenuptials. After 5 years in the business, he gave up his practice and went into general law because he found that more than 90% of his prenuptial clients had split.
â€¢ Keep accounts separate or together? People marrying for the second time have lived independently for a while, often for a long while. Some opt to maintain two bank accounts and keep their money separate. Others open joint accounts. We think either way works fine, as long as you're open with your spouse about how you're saving and investing. Investment decisions should always be made together.
â€¢ Write and use a monthly budget together. "Ugh," you think. But this is the key to getting what you want with your money. Involve your kids, too.
Here's how we handled the process. Before we married, Mary always wrote budgets. Bill never did. But we finally agreed to do one together. After estimating our income for 2004 and our major expenses, we drew up a wish list of what we wanted to do with the money. That helped us talk through our priorities. Now we track how we're faring with monthly budgets. If Mary is hoping to redecorate the den or Bill wants to plan a trip for the family, we have a clear sense of whether we can afford it.
â€¢ Play catch-up with college funds. In our case, Mary hadn't been able to save much toward college for her children. Bill had set aside a substantial amount for his son and daughter. We knew it wasn't fair to take from one set of kids and give to the other. Saving for Mary's children became one of our priorities. We reassured Bill's children that their money was safe. Though our youngest, Will, is still at home, Tate, Whitney, and Gracie have all been able to pursue the college education or military opportunity of their choice.
Remember that scholarships, loans, and 529 plans are plentiful. Excellent Web resources include www. savingforcollege.com, www.collegesavings.com, and www.kiplinger.com. Tax advantages, such as the lifetime learning credit and the Hope credit, can help, too. IRS publication 970, "Tax Benefits for Education," explains more about them. You can download a copy at www.irs.gov/pub/irs-pdf/p970.pdf.
â€¢ Think fairly, not equally. If your daughter gets horseback riding lessons, does your son need a new car? Thinking that way will make you poor in a hurry. Don't try to spend exactly the same dollar amount on each child. Avoid the temptation to be the good stepparent by buying things. Listen to each child to determine what they really need. The only time we believe in "equal is fair" is birthdays and holidays. We spend an equal amount on each child then.
Talk with your kids about money. If you don't have the money, tell them you don't, regardless of what their friends have. Money has never appeared like magic for most families. It comes from hard work and diligent saving, and all children ought to know that.
â€¢ Help your children become investors as soon as you can. We encouraged each of our children to become investors by giving them money to start their own stock portfolios. We selected stocks with them and agreed to match whatever they put in. You can do the same with as little as $250 per child. By having a portfolio of their own, your children will start to think like savers, rather than just spenders.
â€¢ Acknowledge that you're four parents, not two. We typically think of the mom and dad as making all the key financial decisions. But in a blended family, it's more often mom, mom's ex, dad, and dad's ex. No wonder money dilemmas can become so complicated.
Separation agreements may feel very black and white when you're negotiating them. Later you realize all the issues you didn't anticipate. Let's say your exhusband agreed to pay for your son's college education. But your son wants to take his junior year abroad, and your ex balks at paying for it. What do you do?
These situations come up often in blended families. That's why we urge you to be friendly and pleasant to your ex-spouses. Negotiation and compromise will be much more likely when everyone is cordial. There are no insurmountable obstacles as long as everyone keeps talking.
â€¢ Prepare for life after work. Being a single parent isn't easy financially, and there's a good chance one of you hasn't been able to save enough for retirement. Look carefully at your retirement accounts. If needed, invest more heavily in one of them to ensure that you can retire together and enjoy those blended grandkids.
Bill Staton is chairman of Staton Financial Advisors LLC, a money management firm. Contact him to join his free weekly "Dollar-Bill Club" and receive a no-obligation trial to his weekly "E-Money Digest." He welcomes questions or comments at 704-365-2122, email@example.com, or via fax at 704-365-1910. Mary Staton recently coauthored with Bill Worry-Free Family Finances (McGraw-Hill; 2003), which is available at www.billstaton.com and at all bookstores.