Financial pitfalls of blended families
Blended families are on the rise -- and so are the pitfalls that can come with mixing family with money.
Arguing over how much money to spend on different children or feeling frustrated by an ex-spouse's financial role are common issues for the 65 percent of remarriages that involve children from a prior marriage, according to the National Stepfamily Resource Center.
Forewarned is forearmed. Whether the issues involve child support, financial aid, spreading time and costs among biological and stepchildren, or resolving holiday time and expenses, blended families can use some expert advice to prepare for the financial challenges that lie ahead. Read on to learn what the experts say.
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 percent of that money was actually paid. In other words, 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, Ph.D., a clinical and financial psychologist based in the Atlanta area. She notes that the downturn in the economy has left many parents who owe support either unemployed or re-employed at a lower salary, which tends to permanently 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, 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, residency, and 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, associate vice president of Financial Aid Experts Inc. "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. As you might expect, some noncustodial parents are unwilling to cooperate because they don't want to disclose their income for fear that information may cause an ex-spouse to seek more support.
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, 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 their lifetime, but upon their death, the asset passes onto 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
Blended families run into this problem every year: figuring out how to visit three or four different households on Thanksgiving, Christmas and other holidays. Holidays and family traditions, such as an annual Labor Day vacation, 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.
Holidays can also be the perfect setup for sibling rivalries and relationship stress. Whether it's a grandparent not accepting the new family and buying more presents for some kids than others, or an ex-spouse lavishing a child with gifts 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.
Let cooler heads prevail
Some of the financial landmines faced by blended families include counting on child support to remain constant, failing to prepare for college costs, avoiding a written estate plan and trying to please everyone during the holidays. If the major pitfalls aren't anticipated and addressed, children are likely to witness more fights and arguments about money. This could result in a buildup of resentment among biological parents, stepparents and even siblings.
By preparing for these situations and understanding that blended family life may be more complicated than in a traditional family, parents can avoid some of the major pitfalls associated with blending family and money. Doing so ensures that the children don't lose out.