Financial Literacy - Families and Finance
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Blended family finances need scrutiny

No matter how your second family comes together, there's a lot of work to be done before you start picking out china patterns.

Starting, for instance, with some of these common questions:

•   How will the household bills be divided?
•   Is someone paying spousal or child support? How will that impact everyone in the new household?
•   Will the standard of living be set according to the person who brings the most money in?
•   If so, how long will it be before resentment sets in because that person is paying for everything?

Discussing every dark detail of your financial life before embarking on a second or third marriage will make your lives easier and help your marriage succeed.

Blended family issues
  1. Unequal footing
  2. Prenuptial agreements
  3. Separate accounts
  4. Estate planning
  5. Insurance solutions
  6. Working together ...
  7. ... Or staying apart

Unequal footing

It's better to tackle money issues before walking down the aisle rather than realizing six months after the honeymoon that you've been indirectly putting your spouse's kids through college by paying all the household expenses. Meanwhile your spouse's income goes to the ex and their kids' expenses.

It's not an unusual situation, says Jeannette Lofas, Ph.D., LCSW, founder and president of the Stepfamily Foundation.

"That happens a great deal of the time," says Lofas. "She doesn't directly pay the bills for college, but for everything else over time -- the lights, the mortgage, vacations. Essentially she is putting his kid through college," she says.

The solution? Lofas suggests putting it in writing that both parties acknowledge the imbalance and a plan to pay back the money.

"If she is donating money for his kids' college, we encourage them to write out a loan agreement, with him saying that he will pay this money back," Lofas says.

Before it comes to that, couples should know what each party is bringing into the marriage -- both assets and liabilities.

And that can mean a prenuptial agreement.

Prenuptial agreements

Prenups do more than protect the rich half of the couple from the grubby hands of the less-well-off partner. They document income, liabilities and assets of both partners and should protect both their interests. The groom and bride each need a lawyer to represent them.  

Lofas suggests that the future husband and wife meet with a mediator experienced in working with stepfamily relationships.

In her practice, the prenuptial agreement spells out not only financial obligations, but domestic duties as well. The details are hashed out and then sent to lawyers to finalize.

"Our prenuptial has to do with money, but also has to do with the responsibilities in the house. Like when my child comes over, I expect you to be here in the morning, you have to have lunch with us, whatever. We take it all the way down to who makes the bed, who takes out the garbage, who waters the plants. None of that is enforceable, but if they negotiate then somehow it becomes a reality," says Lofas.

Keep it separate

A prenuptial agreement is just the first step toward building a financial agreement. Many couples going into later marriages need to keep their money separate to avoid trouble down the road.

According to Adryenn Ashley, author of "Every Single Girl's Guide to Her Future Husband's Last Divorce," there is never any reason for married couples to commingle their assets. Women marrying men who've been married once before may have more compelling reasons for keeping their money separate.

"Keep everything separate no matter what. You don't know when someone can sue your husband and they will come and take your money," she warns.

"Putting all the money into a joint account allows collection from that account for the debts of one spouse regardless of who put the money in! This can be very stressful if you direct deposit your money into the account to pay your joint debts, only to find one day that the account has been emptied," says Ashley.

"For instance, if you've been saving for your child's education and that money is not protected, it can be taken," she says.

Ashley recommends keeping an untouchable pot of money.

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Gale Northrop, a branch manager for Charles Schwab in Las Vegas, agrees.

"There have been a lot of circumstances that I have seen, in second and third marriages, where a commingled account is accessed by a third party, a former wife or husband, for marital support. It is better to keep it separate in those situations," she says.

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