WHEN “his”, “hers” and “ours” are under one roof, family finances and budgeting can become blurred, and may give rise to tension. This is particularly the case with “blended” families, where one or both partners have been married before and have financial obligations to their former spouses or children from a previous marriage.
Couples who marry for the first time usually have little in the way of a joint financial history, but the opposite is often true of blended families. The two parents in a blended family have emotional and financial baggage.
We looked at our client base and found examples of various types of families and how they manage their finances. (All names have been changed.)
Partner supporting an ex-spouse
One partner or both partners may have financial obligations to their former spouse in terms of a divorce order, and this should be discussed openly and accounted for in the monthly budget.
When Lynnette married a divorcé, he was paying a large portion of his income to his former wife, because she did not work and their daughter attended a private school.
“As the new wife, I was not happy having to make financial sacrifices while his ex-wife lived well in the next suburb. The financial support for the ex-wife caused huge tension in the new family, especially since the generous support was driven by guilt and the inability of my husband to confront his ex-wife,” Lynnette said.
“Eventually, we got together as two families and looked at his ex-wife’s budget and adjusted the maintenance accordingly. We also set a date by which time she needed to get a job and further reduce the maintenance. After three years, my husband now supports his teenage daughter, but his ex-wife takes care of herself.”
Comment: Financial obligations in terms of a divorce order can be amended only in terms of an order of court. There may be many reasons the former wife did not work, including the possibility that her ex-husband wanted her to stay at home to look after their daughter. These two families approached the matter maturely and were able to resolve their problems. However, this is not the norm, and these all-important issues should be addressed before making a long-term commitment to someone who has financial obligations to his (or her) previous spouse.
A widow and a widower, each with children
Joe lost his wife, and Belinda lost her husband. When they decided to get married after a whirlwind romance, one of their first conversations was about money.
“My husband had made provision for us financially, and Joe has a well-paying job, so we have decided that we will each take care of our own kids’ expenses. We then share the household expenses proportionately to what we bring to the table – from my investments and Joe’s salary. It’s working so far,” Belinda said.
“We have already decided that, on our deaths, each of us will make provision for our own kids.”
Comment: It is wonderful that each partner is financially stable and can support his or her own children. This is the ideal situation, because it removes financial stress from the newly formed family.
Again, this is not the norm, and a surviving spouse is often left inadequately provided for. We recently had a client whose ex-husband passed away at the age of 51. He died quite convinced that he had provided more than enough for his children. However, he had received incorrect estate planning advice, and the impact of capital gains tax, estate duty and other taxes had not been factored into the calculations. Although he had assured his children that they would have “millions” when he died, the reality was quite different.
Children from a previous marriage and their own baby
Shane brought two boys from his previous marriage into his marriage to Letitia. Within a year, the couple had a baby.
In a blended family, there may be an imbalance in, for example, the financial resources allocated to each child, or how much has been saved for the education of each child.
Comment: It can be difficult to ensure that your children receive “the same” as your step-children. Instead of trying to make sure that the same amount is spent on each child – which is almost impossible given their different needs – the emphasis should be on what is fair. The children need to understand that they have different needs at different stages of their life, and everyone’s needs will be treated fairly.
A financial roadmap is crucial for the future stability of a newly formed family, and an independent financial adviser can be instrumental in mapping out a plan. Honest and open communication about each spouse’s financial affairs is the starting point of this journey.
Craig Torr is an accredited Certified Financial Planner and director of Cape Town advisory firm Crue Invest.