Finances of Stepparenting: 6 Things Every Family Should Know

3. Cash Flow
Some budgetary issues should be worked out ahead of time. Are you each going to contribute one-half to the family budget, or will you contribute proportionally according to your income? Will you keep one checkbook or two?

Either way can work; just make sure each of you has some discretionary money. If you keep separate accounts, start building a joint fund for vacations, home projects and other shared expenses.

4. College
New partners often keep college funds separate, but it can be tough if you have different philosophies and resources. If the children are of high school age, their expectations have already been set. It's easier to build a common fund and common expectations if the children are younger, but remember, even children in "traditional" families often choose different colleges with different price tags. Fair doesn't mean equal.

One negative effect of second marriages on college planning is that, under federal rules, your new spouse's income and assets are included in the financial aid formula even if he does not contribute to college for your children. The new calculation can reduce or even wipe out loan and scholarships.

5. Taxes
Brace yourself for the marriage tax penalty. If both of you work, you will probably pay more as a couple (even thousands of dollars more) than two single working people. If you or your spouse was filing as head of household, the new tax bite can be even worse.

Sit down with a financial planner or accountant and project your new tax bill. Make sure you and your ex-spouse are clear on who claims the children as dependents.

6. Estate Planning and Other Legalities
If you signed a prenuptial agreement, your to-do list is shorter. You will still both need to write new wills and check the beneficiaries on life insurance policies, retirement plans and IRAs. The presumption typically is that the biological parent (your ex-spouse) would be the guardian if something happened to you.

Sometimes parents who remarry wish to leave their assets to their children; others leave specific assets (such as a life insurance policy) to their children and the rest to their new spouse. There are many variations on this theme.

By setting up a trust, you can ultimately leave your assets to your children, but allow your surviving spouse to draw from it as needed during his lifetime. Consult an experienced estate-planning lawyer who has worked with blended families. You should also discuss powers of attorney, living wills and medical consent forms.


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