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The blended family balancing act

19 February 2018

Two couples with their children laughing together as they become one family

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

When one family becomes two - or more - financial stress can multiply too. Get expert tips from CERTIFIED FINANCIAL PLANNER® professional Fran Hughes about how blended families can work together on a straightforward and fair approach to managing money.

Whatever your marital status, your 40s can be a challenging time financially. Growing kids are costing more, especially if you have to factor in school fees. And on the other side of the equation, family income may be coming from only one working partner.

According to the Australian Institute of Family Studies, the median age for divorce in 2013 was 44.8 for men and 42.2 for women[1]. So when families are coming apart and come together again, the strained purse-strings of our mid-life child rearing years can reach breaking point. Given that financial disagreements are the strongest predictor of divorce[2], tensions over money can lead to even less chance of a “happy ever after” second time around.

We talked to Fran Hughes CFP®, co-founder of www.womensmoneyforum.com.au to draw on her experience of guiding clients with blended families towards lasting financial stability and harmony.

Be honest from the start

Money is such a taboo topic in our society. If only every couple could have a frank discussion about money beliefs and behaviours at the start of a relationship. I think we’d see a lot more marriages succeed as a result of this financial honesty, and agreement on lifestyle expectations! If a second marriage is going to have the best chance of working out, this “lay your cards on the table” approach to money is absolutely essential.

When a spouse leaves family no 1., there are financial commitments that have been made based on family court outcomes, not to mention the emotional pull a mother or father still has to deliver everything children have come to expect – holidays, private education, gifts and more. It takes a lot of courage for someone entering a new relationship to be completely honest – and not a little bit humble – about these limits on the wealth they’re offering to a new partner. But if they can come clean at the beginning, it sets up reasonable expectations and a firmer foundation for the financial wellbeing of a new couple.

Full disclosure on debts

Being clear about debts you’re going to be servicing should definitely be part of the disclosure process. And although no one likes admitting to being a borrower, it really shouldn’t be something to hide. Recent figures from the Australian Bureau of Statistics Household Income, Wealth and Expenditure Survey put the average amount of household debt in Australia at $168,600 and most of that balance will come from mortgages[3]. So being in six-figure debt is a reality that most Aussie families are facing today and nothing to be ashamed of.

Set the boundaries for family finances

When all the commitments to family no 1. are accounted for, what’s left can be allocated to what I call the NBF (New Blended Family) Fund. This is money that both partners bring to their new household, without compromising on prior commitments to children and ex-spouses or partners. And the boundaries must hold firm, both for the NBF Fund and other financial arrangements. When there is that emotional need to provide without question, for the needs and wants of our kids, we can end up short-changing a new relationship. Not only does this set the scene for resentment and competition between family units, it can also create tremendous risks for everyone’s financial security.

So when kids ask for the holiday, the new electronic device or just a takeout as a treat, the decision comes down to what the budget can bear. This should apply to all families, whether traditional or blended. But in the blended scenario, that sense of obligation to provide can be a lot stronger if a parent can’t actually be with their kids as much as they used to.

Honesty is for everybody – including the kids

This is why having clear and open conversations about money with your kids is just as important as the ones you should be having with a new partner.  When you take time to explain in simple terms the concept of having budgets for each family, kids can better understand that their needs are still important, but have to be considered within the limits of what their family unit can afford.

Having it all is something we’re all getting used to in society. The fact that 55% of our population owe money on credit cards[4] shows that a lot of us are comfortable with buying now and paying later, even though the interest owing should be a powerful deterrent. If you’re determined to deliver a certain kind of lifestyle to more than one family, start by figuring out your budgets and then put your plans, hopes and dreams before a financial planner. They can help you prioritise what’s most important to you and your family and come up with a more sustainable strategy than running up credit card bills.

Set up a will for what if?

A financial planner can also help you with setting up your will to ensure your kids and new partner are both taken care as you would intend. If you don’t take steps to separate matters of money and guardianship in your estate plan, your kids and assets may both become the responsibility of your first partner. This is just one of the potentially complex and emotionally charged issues that can arise when there’s a death in the family so it makes sense to tackle this from the outset too.

Want to find out more about limiting the impact of marital separation on your finances? Watch this video about the dollars it takes to divorce. And discover why its important for women to make sure a man is not their financial plan.

[1] Australian Institute of Family Studies, Divorce in Australia, https://aifs.gov.au/facts-and-figures/divorce-australia

[2] Relationships Australia, August 2015: Impact of financial problems on relationships, “Disagreement over finances is a stronger predictor of divorce than other commonly cited causes of marital disagreements.” https://www.relationships.org.au/what-we-do/research/online-survey/august-2015-impact-of-financial-problems-on-relationships

[3] News.com.au, ABS research reveals household debt has doubled over 12 years, Sophie Elsworth, 13 September 2017, “The Australian Bureau of Statistics Household Income, Wealth and Expenditure Survey has found the average amount of debt has almost doubled in the past 12 years — from $94,100 in 2003-04 to $168,600 in 2015-16. Most of this is accounted for by property debt.” http://www.news.com.au/finance/money/budgeting/abs-research-reveals-household-debt-has-doubled-over-12-years/news-story/43f29dc69102cf86ef2184bbdf78b244

[4] News.com.au, ABS research reveals household debt has doubled over 12 years, Sophie Elsworth, 13 September 2017, “While three quarters of Australian households have debts, the most common form of debt was credit cards — plastic debt was held by 55 per cent of the population.”  http://www.news.com.au/finance/money/budgeting/abs-research-reveals-household-debt-has-doubled-over-12-years/news-story/43f29dc69102cf86ef2184bbdf78b244