Family money:
Susan Hely
About 20% of Australian families have children from previous relationships. Blending kids into a new relationship isn’t easy and it can take a number of years – at least five, according to the experts – for things to go smoothly.
But it is best not to take so long to sort out the finances. There are plenty of financial tensions among blended family members and it’s a good idea to sort them out as soon as possible.
For a start, consider drawing up a prenuptial agreement that outlines who owns what and who pays for what. But if you haven’t already done one, there is still time for a “mid-nup”. You never know what will happen and you need some clarity about ownership of assets, superannuation beneficiaries and estate planning.
Some of the common tensions in blended families are around paying child support for your kids from a previous relationship while you are married to someone else with kids – it can be a sore point with your new partner. Or your former spouse may be worried that their money is being spent on your new partner’s kids.
There are plenty of financial considerations at every turn. If you buy something for the child you have had with your new spouse, how does that play out with your children from the earlier relationship or your new spouse’s own children from their previous relationship?
If you have money, says Peter Bobbin, managing principal at Argyle Lawyers, blended families can get complicated. But they become especially tricky if one parent dies. “The stepmother or stepfather can take the money away on the death of their partner, voluntarily if their partner allows them, or via action of law if they did nothing,” says Bobbin.
The single most complained about issue before the Superannuation Complaints Tribunal is death benefits. Most involve blended families, says Bobbin.
What financial claim does a new spouse have over a first wife or husband? What about the adult children from the first marriage versus the stepchildren? And then there is the “blow-in”, as Bobbin describes the new partner who has only been on the scene for a short time. What are they entitled to?
It is good idea to have some clear estate planning drawn up for a blended family. “But people drop the ball and don’t do a great job with estate planning,” says Robert Monahan, director of estate services at HLB Mann Judd.
The Superannuation Complaints Tribunal says that cases involving the distribution of death benefits are becoming more complex due to modern living arrangements, de facto relationships and complex family structures. “I think people often misunderstand the validity of death benefit nominations and may not appreciate the difficulties of determining who is dependent on the deceased or interdependent. Often it is adult children objecting because a death benefit has gone to the de facto. There’s certainly an opportunity for more education,” it says.
What families fail to understand is that superannuation death benefits don’t form part of a deceased’s estate. It can be a shock for them to discover that the super fund distributes money directly to the deceased’s spouse or children. The issue is often determined by the deceased’s nominated beneficiaries.
“This is why you must update your estate planning,” says the tribunal.
Super death benefits are really problematic for stepchildren, says Bobbin. “Unlike Cinderella, the easier blended family is where one parent dies and the surviving parent remarries. They do so with all of the former family money intact and under their control.”
“The more problematic blended family is one that involves parties each with children and each surviving a financial divorce. And the problems open up when the blended family with children on both sides has a new child from the new relationship. There is a whole new school education requirement and jealousy galore,” says Bobbin.