How to Divide Assets in a Blended Family?

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How to Divide Assets in a Blended Family?

What would happen to your assets if you had stepchildren if you passed away? Can you protect them from your stepchildren? How would you handle a blended family with adult children? And how to divide assets in a blended family? Plan your approach based on what is relevant to you at the time.

 

Meaning of a Blended Family.

A blended family consists of the parents and all their children, regardless of their past relationships. Family is what you call it, regardless of what you name it. A blended family occurs when you and your partner bring children from this relationship and previous ones.

As you start a new life with your partner and children, you may be happy to begin a blended family. However, the kids might need to share your excitement. Blended families may be in doubt about their finances and stepchildren. Stepparents may also worry about their transition to living together with their parents.

 

What Is The Structure Of Blended Families’ Wills?

It is not unusual for people to bring a child or children from a previous relationship when they vow to live in marital bliss.

When a couple joins forces, they may share a child and children from previous relationships. These situations are typical of “his, hers, and theirs” families. This column discusses some factors to consider when making typical wills for blended families.

This is really the threshold question: what is the best amount to give to your spouse versus your children? Below, you will find three options, which progressively increase in complexity.

I assume that the husband dies before the wife, and both husband and wife have an estate worth $500k, or $1 million.

 

Give all to the spouse.

As a simple solution, the surviving spouse receives 100% of the assets of the first to die. Therefore, the surviving spouse can direct what happens with the total assets (the $1 million).

As a possible solution, the couple could have prepared a will in which all assets would go to the surviving spouse, and then, when that spouse passed away, all help would be divided among all the children (his, hers, and theirs).

It’s possible that the survivor could change his disposition after death. Maybe he and her kids had a falling out.

In any case, there is the possibility that her children may not receive anything from him in the future. Perhaps he will remarry. Maybe he will become financially bankrupt for some reason.

 

Divide the gifts

There is also the option of dividing the assets in the will. According to the wife, $100,000 should go to each child from the previous relationship, while $300,000 should go to her husband.

Her children from her last relationship would have a chance to inherit if she used this technique. The wife might feel better knowing her husband will still care for his biological children, including the child from their relationship.

 

The trust

Trusts are restrictions on the use of assets, such as the wife who wants her assets ($500,000) to remain in a trust for her husband.

If the husband dies, she can choose who gets the money – maybe her children from before or all of them. The husband uses the money during a specified period (usually a lifetime).

 

Blended Families: Best Tips for Splitting Finances

How to split finances in a blended family? In a blended family, finances can be a problem. Here are some tips on how to deal with them.

 

Blended Families: Best Tips for Splitting Finances

 

Before getting married, talk about finances.

How do you split an estate in a blended family? Couples need to discuss finances before they get married. In a blended family, how should finances is split? Getting a handle on the debts and obligations incurred with a previous spouse can be done with the help of a financial planner. Furthermore, discuss how to safeguard finances for the new spouse and children. Before starting a blended family, discuss the financial plan with your spouse. This will help you both be on the same page and succeed together.

 

Plan a budget and adhere to it strictly.

Set a collective priority for your expenses.

Make sure you save a reasonable amount before incurring any expenses; determine the essential things and the portion of your income that will go towards household expenses.

Most likely, you will prioritize the following:

  • Getting a mortgage
  • The cost of education
  • Maintenance and insurance for automobiles
  • Groceries and utility bills are household expenses.
  • Bills for medical care

Consider your children’s allowance or how they spend the money you give them. Allocate these expenses fairly by considering each person’s salary. Children’s support may have to continue, and alimony payments may need to continue. If these issues remain unresolved openly, they may cause stress at home.

 

Each couple should have a separate bank account.

By having a joint account, you can share the costs of household expenses and vacations. However, it’s also important to maintain separate accounts. To separate the accounts from the previous spouse’s support, a certain percentage of your income must go into these accounts as savings or child support.

 

Attend family meetings

When two families merge, everyone must adapt to the changes, including the finances. As the children grow, the family and financial situation will change, too. Keep the meetings informal so that your children look forward to them and can understand the problem.

 

Maintain a tight budget.

Even though you will trade in your single-parent income for a dual-family payment in a blended family, it is still necessary for you to live within your means.

Despite being very tempting to overspend or take on new debt when moving into a higher-income group, blended families usually require more expenditures than single-income families.

 

Plan your budget for special events.

In a blended family, how do you manage finances? Setting a budget for holidays and birthdays before the season starts is essential since everyone has celebration traditions. Include a gift limit on Christmas and birthdays to ensure you stay within your budget. In a blended family, how finances divide is an important consideration.

 

Identify the blended family finances habits of both parties.

According to statistics, different money management styles and financial difficulties often lead to divorce. It is therefore important to talk about money styles before getting married.

Couples can avoid financial losses and arguments about money by communicating their spending habits and desires before exchanging vows.

 

Describe past financial problems, failures, and current debt.

The decision on who will manage or control the bank accounts and how you will save for significant expenses such as home purchases, education, and retirement should also be discussed.

Couples merging families must manage and organize more than just their wedding, living arrangements, and finances. Both partners will have their financial obligations, and the shared expenses may need to alternate.

Managing finances and reducing money-related stress is easier with a realistic, balanced budget. Consistent money rules will help you communicate how to spend money effectively with your spouse and kids.

 

The delegation of authority

Managing day-to-day expenses, like groceries, phone bills, utility bills, etc., might be the strength of one of you. The other may be good at investing, stocks, real estate, etc., so focus on your strengths. You should be able to manage blended family expenses well if you delegate duties to others.

 

Budget your separate expenses.

It does not mean that if you have a family or a blended family, you do not have a life and budget.

For a blended family, creating separate budgets is very important because you need to know how much money you can spend on your expenses and how much you should save or set aside for the family.

 

Only spend joint funds.

This ensures transparency and understanding of how much is required to incur blended family expenses by making all purchases from the joint account.

Having a joint account can make sharing expenses easier in a blended family. However, it is more important to ensure this is a strict rule that follows, as it can lead to frustration and confusion.

 

Issues and Challenges

For parents of blended families, the first thing to do is have a frank and open conversation about the distribution of assets if they die tomorrow. The scenario may be dismaying, but it allows the couple to clarify their sincere wishes and crystallize the issues.

A surviving spouse, however, can still change a will to benefit their children despite both agreeing to a specific division of assets. A former spouse may also seek to acquire your assets following your death, so you may wish to protect yourself.

 

Solutions That May Be Possible

Talk to a reputable estate lawyer to sort through all the available variables, scenarios, and options. There are no standard solutions. You can ensure assets pass appropriately to your designated heirs by using some of the following methods:

 

Postnuptial Agreements:

The couple can talk to a lawyer to plan what happens after one spouse dies. The lawyer will help them create a legal agreement about what the surviving partner can and should do. The contract can also eliminate the surviving spouse’s rights to certain assets the deceased had before marriage and were planned for their offspring.

 

Trust Qtip:

Trust QTips, also termed Qualified Terminable Interest Property, enables the surviving spouse to receive lifetime financial support, and then the remaining assets are distributed equally to their children or by their wishes.

 

Life Insurance Policies:

Each parent can set up a plan that pays specified beneficiaries in the event of their death.

 

Trusts:

It is possible to designate a trust that ensures the care of a surviving spouse and then disburses the remaining assets according to the trust’s designation under California Law. It is possible to determine who will manage it when the trust is created, whether they are family members or not.

 

Avoid These Mistakes

To avoid these mistakes, follow these steps:

 

Not changing named beneficiaries.

Wills and beneficiary designations should occur, so it’s a good idea to do this immediately, before or after the wedding. For instance, changing your 401(k) beneficiary will pass directly to your surviving spouse.

Make sure your financial accounts are updated and your life insurance beneficiaries are updated as well. It is possible to designate children as secondary beneficiaries, so in the event of the death of both parents, they will receive assets.

Suppose you want to avoid your ex from handling medical and financial decisions for you. In that case, you should update your legal directives, including the medical and power of attorney.

 

Not updating your will.

Estate planning in a second marriage usually involves making sure the spouse inherits all the assets, and after their death, they divide the remaining assets among all the children.

In most cases, assets pass through the will unless you have otherwise planned. A surviving spouse has no legal right to rewrite their will, leaving the late spouse’s children with nothing. An attorney can explore several options to prevent this from happening.

 

Treating all heirs equally.

This is a mistake. If the goal of the marriage is to keep the assets in the bloodline of the spouse with significantly more help than the other, it is essential to take care.

The original homeowner might wish to have the proceeds of the sale of the house inherited only by the original homeowner’s children if a second spouse and children move into the house. For pensions and retirement accounts, the same is true.

If one spouse’s children can access resources that the other spouse’s children do not, then equal distributions may not be true equals. On the other hand, the other spouse’s children may not have access to a second parent or their wealth to rely on, while the other spouse’s children may expect to receive support from their other parent.

In this case, giving special consideration to disadvantaged children may be more equitable.

 

Waiting to give until you’ve passed.

Rather than passing on your property through a will, it might be a good idea to gift to your heirs while you are alive. You are not required to pay federal gift taxes on gifts up to $15,000 per individual or $30,000 per couple.

If you and your spouse have four children, and they are all married, you can give each child and their spouse $30,000 without triggering any taxes on you or them. Recipients do not pay taxes on most gifts.

Moreover, your spouse can make a gift of the same size. By giving $60,000 each to each couple, you and your spouse can make $240,000 per year for all eight people without paying taxes. As a result, the recipient does not see this as income and takes assets out of your estate.

 

Doing it yourself.

In addition to having a second marriage, ex-spouses, blended families, and co-mingled assets, estate planning becomes even more complex for older adults with special needs or aging parents.

Without a thorough understanding of the law (including tax law), you are attempting to develop your estate plan, which will result in trouble for your children in the future. Estate planning attorneys are worthwhile investments, especially for property division in blended families.

 

The Takeaway

How to divide family property? Couples have so much on their plate when managing a blended family. It can be challenging, especially since they have so much on their plate. Communication is essential throughout the property division process in blended families, so keep the lines of communication open.

Additionally, couples therapy or family therapy may be helpful if you or your children find it challenging to adjust to the new dynamics of your family.

Hedy Ghavidel

HEDY GHAVIDEL Managing Attorney  Roseville Office  1-866-471-6981  info@attorneysre.com Bio...

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