One dictionary definition of blend is: to make a pleasing combination. That must certainly be so because more and more families are doing it.
A blended family is the result of two people entering a marriage or common-law relationship where one or both partners have children from a previous relationship. If that describes your situation, you probably already know this: the blending of two families opens up unique money-handling and financial planning issues. Here are some to consider:
Cash management Disclose all assets and liabilities each partner brings to the new union. Review each partner’s income and expenses, create a budget together, and decide who should be responsible for paying day-to-day bills. Seek agreement on your new family’s short- and long-term financial goals. Remember to include any “hold-over” obligations like child support payments or alimony.
Child management Parents can have very different ideas about kids and money. Avoid jealousy and ensure equal treatment by seeking a blended agreement on how you will provide money to your kids on a day-to-day basis.
Also be sure to discuss how you will save for each child’s education. If one partner has invested in a Registered Education Savings Plan (RESP) for years and the other hasn’t, find ways of bridging the gaps so each partner’s children will have equal opportunity for a post-secondary education when the time comes.
Tax management Take advantage of such tax-reduction strategies as pension income-splitting and/or spousal Registered Retirement Savings Plans (RRSPs) and maximizing the charitable donation credit in the name of one partner.
Insurance and disability Make sure your life insurance beneficiaries are up to date and be prepared for the possibility of becoming disabled by ensuring that you and your partner appoint a power of attorney for finances in your “living wills.”
Estate management In every province except Québec, getting married renders all previous wills void — so you and your partner should redo your wills and estate plans right away. Also, avoid a “standardized” will. You’ll need to make very specific provisions in your will to be sure that a child or stepchild in the blended union is not inadvertently disinherited.
For example, if the first partner to die left everything to the surviving partner, that person could choose to leave the entire estate only to his/her children. Or, if the surviving partner remarries, the children of the deceased partner and even the children of the surviving partner could be disinherited.
Finding the right financial formula for a blended family can be complex. Your professional adviser can help you develop a perfectly blended plan for your unique situation.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.
