How to be financially savvy as a blended family

Remarrying brings immense joy and optimism for new beginnings. You are older and wiser than before, but the financial implications may be more complex.

Be proactive by determining how you will manage your finances together, as well as how you will protect your assets and safeguard the interests of all your children and any other dependants.

Marry the right way the second time around

It is crucial to decide on your marital regime before you say “I do”. If you are remarrying later in life, you may have accumulated some assets, so it is even more important to consider your marital contract carefully.

Your marriage contract regulates the financial consequences of what happens to you as spouses but doesn’t protect your children’s inheritance. You need to take care of this through proper estate planning and an updated will.

Getting married out of community of property with accrual protects your assets and opting for accrual allows you to decide which assets are excluded from your antenuptial contract. Seek legal advice to find the best solution for your circumstances.

Face up to financial challenges from a previous marriage

Your past can cause tension in a marriage. You don’t have just your current family to consider, but also children from previous marriages and possibly dependent former spouses:

• Maintenance obligations

If one partner is paying maintenance to a former spouse or for children from a previous marriage, it might interfere with your current priorities, causing stress, particularly if you have a child with your new spouse or partner.

If you are receiving maintenance and your former spouse doesn’t pay, this can also lead to resentment as your new spouse has to carry a greater financial load.  

• Different financial beliefs and habits

Financial beliefs and habits tend to be more entrenched later in life and you are more set in your ways. For example, if you have been single for a while, you may be more financially independent, making it tough to combine your finances with another person’s finances. You may also have divergent views on money, making it difficult to find common ground.

• Debt obligations

Your marital contract may protect you from your new spouse’s debt, but their debt obligations will deplete the money that you could have used to achieve your family goals. This can cause resentment.

• Vastly different earnings

If one spouse earns significantly more than the other and supports a home that includes children from a previous marriage, it can give rise to resentment about paying for someone else’s children.

• Favouritism

One spouse may unintentionally favour a biological child over stepchildren, and this can cause resentment in your family.

Solve blended family tension with honest money conversations

Don’t let money issues fester and turn into major problems; rather, discuss them upfront. While these conversations are not always easy, they build the groundwork for your financial wellness as a couple. Some of the issues you should tackle include:

• How will you manage your day-to-day finances? Will you have a joint bank account, a separate bank account, or a joint account for shared expenses?
  
  
• Who will pay for household expenses? Will it be shared equally, or will each partner pay for certain expenses?
  
  
• Will each partner cover their own children’s expenses, or will this be shared equally?
  
  
• What maintenance obligations does each partner have for children or former spouses?
  
  
• What are your financial goals as a couple?
  
  
• How do each of you want your assets distributed upon death?
  
  

Your will and leaving a legacy 

Your will should reflect your changing circumstances. If you do not have a valid will, the Intestate Succession Act will determine who will inherit your assets. It is a very rigid legal process that does not consider your family circumstances.

If you have a will you should update it to reflect what you want your former spouse to inherit. The law treats a will that is not updated within the first three months of a divorce differently to a will that is still not updated after three months (see Updating your will after a divorce). This may not be what you want.

When you remarry or enter a new relationship, consider that your children may fear that your new spouse is a threat to their future inheritance. Discuss your wishes with them so that they know what will happen when you die. This will prevent any mistrust.

It is critical to update your will as soon as possible after a divorce. There are several complexities to consider when planning an estate if you have a blended family, including possible strained relationships that can happen between stepparents and stepchildren when the biological parent passes away.

You can consider establishing a trust on your death to protect your minor children’s benefits.

How retirement fund death benefits are distributed

You can nominate a beneficiary or the beneficiaries who will receive benefits from pension, provident, preservation and retirement annuity funds, but this is merely an expression of your wishes, and no guarantee of how these benefits will be distributed.

The final decision lies with the retirement fund trustees in accordance with Section 37C of the Pension Funds Act. The trustees must identify and consider the needs of all your dependents as well as the nominations you have made before making a decision. This process could take up to a year.

As a blended family, the trustees may find that your former spouse and children from a previous marriage or relationship, are entitled to a share of your benefits. Elderly parents, adult children and anyone else that was relying on you financially at the time of your death will also be taken into account.

Your current spouse may also be considered a financial dependant but is not guaranteed a specific share of the benefits. A possible solution is to buy additional life cover, which allows you to nominate a beneficiary.