When Remarrying Creates a Blended Family: Advice From Financial Pros

Financial and estate planning can be complicated under normal circumstances. Having a so-called blended family, or one that includes children from previous marriages, ups the ante. That's where advisors have an important role to play.

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There's no one-size-fits-all model when it comes to blended families, but working with these clients can take more effort, depending on the family makeup, relationships, and asset levels. Some blended families consist of two adults with children from previous marriages, while others also include children they have together. Sometimes they can even include stepchildren from previous marriages.

There can be warring emotions, competing interests, and various assets both sides bring to the table. All these things combined make it incumbent on advisors to help clients craft a road map early on for dealing with their finances now and in the future.

Here are five ways advisors can help:

Understand the family dynamics. Advisors need to have a firm handle on family dynamics, says Mike Barry, managing partner with Quorum Private Wealth, which has offices in Danville, Calif., and Morristown, N.J.

Is the couple coming together after divorce or widowhood, and are there minor children or adult children, or both? What assets are both sides bringing to the table? And what are the plans for those assets? How comfortable are they discussing money with each other and with their respective children, if applicable? All these things can make a huge difference in how the advisor works with the blended family, Barry says.

Advisors also need to understand what sensitivities may exist. For instance, does the wife's son have a contentious relationship with his stepfather? Or are there certain children who the couple is comfortable sharing information with, but not others? "It can be a matrix of who you can talk to about what. It's really good to know that, especially with blended families," Barry says.

Facilitate emotional conversations. Amy Jucoski, head of legacy and wealth planning for Callan Family Office in Radnor, Pa., recommends, if possible, that advisors sit down with couples before they get remarried to talk about their individual spending habits, budget, and current estate plans, as well as their plans for combining assets and running their household in the future. These can be emotional conversations since people rarely bring the same level of assets to the table and they may also have different spending and saving habits. However, it's important to discuss these matters up front, so they don't lead to discord down the road, she says.

Sometimes it can help for advisors to meet separately with each person, especially if there are rifts or tensions regarding children from prior marriages. This allows all sides to be honest and express themselves so advisors can help bring the sides together without betraying confidences, Jucoski says.

Discuss estate planning. Estate planning is often more complicated with blended families, especially since one or both spouses may have children from a previous marriage that they want to provide for. Advisors can help clients work through the potential ramifications of certain financial decisions so estate planning attorneys can prepare the appropriate documents, says Alpa Patel, west division head of wealth planning and advice at New York-based J.P. Morgan Wealth Management.

Problems, such as accidentally disinheriting children from a previous marriage, can ensue when couples with children from previous marriages don't think through estate planning matters.

Advisors can also raise options that clients may not have thought of. For instance, remarried couples may want to keep assets separate because they want their children from a prior marriage to inherit their wealth, but there are also ways to do that and also provide for the second spouse, Jucoski says.

One option could be a marital trust, an irrevocable trust that allows people to transfer assets to a surviving spouse tax-free. Remaining assets in the trust can be directed to other beneficiaries after the surviving spouse's death.

"Even if blended families get along, just having clear wishes and goals memorialized in a legal document is important for all families," Patel says.

Get very specific. It's important to be as specific as possible. Patel has seen documents broadly written to say everything should be distributed equally between the decedent's spouse and children from a prior marriage. But not detailing how assets should be divided can create uncomfortable and sometimes contentious situations for everyone, especially when dealing with multiple assets, such as a business, home, and a vacation home.

If everything is divided equally, are the spouse and stepchildren going to become co-tenants? Who gets to make the decision about whether to sell or keep a particular asset or assets?

There can also be issues if assets are directed to a particular party, without taking liquidity into account.

Patel gives the example of a $5 million home that's left to a spouse and liquid assets of the same amount left to children from a prior marriage. It might seem equal on its face, but the surviving spouse may not have the means to pay the mortgage and property taxes and could be forced to move, possibly selling at a depressed price.

Advisors can help pre-empt these types of issues by having frank conversations about potential outcomes with clients, she says.

Don't let clients be complacent. It's always advisable to review estate planning documents every few years, or in the event of a major life event, but it can be even more important in a blended-family situation, says James Bogart, chief executive of Bogart Wealth in McLean, Va.

He offers the example of a couple who each came into a marriage with adult-aged children. Their initial intent was to keep everything separate so their adult children would inherit their respective parent's assets. However, after the couple had been married for a number of years, they began commingling assets, including a $2 million home. Before Bogart raised the question, the couple didn't consider what could happen if one of them were to die without updating their estate plans.

His inquiry, and subsequent discussion, prompted them to update their estate plan so the surviving spouse could stay in the house. They also segregated certain assets so that the surviving spouse would be able to maintain the standard of living the couple had grown accustomed to, while at the same time continuing to ensure their respective children were provided for.

Certainly, it can be uncomfortable to talk about financial matters and couples with blended families may try to avoid these issues. But that can lead to unintended consequences such as life insurance or property accidentally left to an ex-spouse. Advisors should be raising this issue for clients so inadvertent—and costly mistakes—aren't made, Patel says. "Just ask those questions: When was the last time you had your legal documents reviewed?"