Financial Planning For Blended Families

Forbes

30-05-2025

A multi-ethnic blended family at the park on a sunny day, sitting together on the ground on a ... More blanket, laughing. The mother is African-American and father is Caucasian. Their two little boys are twins, almost 3 years old. The three girls, 11 to 15 years old, are from prior relationships.
In my experience, many families I meet don't fit the traditional nuclear family dynamic. According to Pew Research, approximately 42% of all adults have a stepparent, step or half sibling, or a stepchild.
However, much of the financial literature out there is not tailored to these blended families. Blended families include an adult person or couple and all the children from current and all prior relationships. I am not only part of this 42% of adults in blended families, but I also have a close look inside of many types of family dynamics as a financial planner.
This is how blended families can financially plan for their family's goals.
Working through financial dynamics in a blended family is naturally more complicated than working through differences in financial priorities in a traditional nuclear family. For starters, many blended families emerge because of divorce or death. This can create strain between branches of the family because of not only differences in opinions, but also potential dislike or open hostility.
When attempting to understand a blended family's financial dynamics, it's important to understand:
Let's go through a recent example of some of these dynamics at play. I was recently speaking with a widow who had two children from her first marriage and two from her second marriage. She had worked very hard her whole life but did not have nearly as many assets as her second husband, who was extremely well-off before she met him.
Since the woman's first two children were already adults when she got married the second time, they did not have a significant relationship with her second husband. As a result, the second husband set up trusts to make sure the widow would be financially taken care of for her life but upon her passing, everything would go to the two children they shared.
The widow loved all her children dearly and valued fairness so she wanted her children from her first marriage to be taken care of and she made them the sole beneficiaries of her own estate, knowing that her other children would be receiving a large sum from their father's assets when she died. If she'd done no planning, her assets would have likely been divided into four equal parts after a lengthy probate process.
Particularly while there are young children at home, budgeting as a blended family can be difficult. If child support and alimony are at play, the most important first step is to figure out what all the costs associated with household dependents are.
Child support is generally intended to provide food, shelter, clothing, and healthcare. In other words, their basic needs. But a child may have additional costs, associated with things like sports, the arts, hobbies, tutoring, and private schooling. Once those associated costs are figured out, then all involved parents can start to assess each item, figure out if cuts are necessary, and negotiate who will be paying for what. Then, the primary caretakers should start to figure in their own fixed and variable expenses.
I've seen blended families where one person feels like they are at fault for a divorce, so they end up covering all costs associated with mutual children, in addition to paying child support and alimony. Years later, this became a significant point of contention when that person's income was greatly reduced due to pursuing a new career path. This is a big reason why open communication around priorities and available budget is critical to continue throughout the life of shared children.
Once you understand the portion of the budget you'll be responsible for, it's critical to ensure you have sufficient emergency reserves. Your emergency reserves should cover three to six months of expenses you are responsible for and should be made up of cash or cash alternatives. These alternatives can include money market funds or high yield savings accounts. If your expenses are $4,000 per month, you should have $12,000 to $24,000 in reserve.
If you are in a two-income household, you have job security, and your cash flows are stable, you should consider having a three-month reserve. If you are in a one-income household, have unpredictable cash flows, or are feeling job insecurity, consider holding a six-month reserve.
Some large milestones in a child's life that might require financial planning include goals like education funding, gifting funds to support in buying a home or business and paying for a wedding. I frequently meet parents in blended families who have different priorities around these types of goals. Some may have neither the discipline nor the motivation to save for any of these goals whereas it may be a high priority for others.
One easy way to make this type of planning about the child and not the dynamics of the adults in their lives could be to set up accounts in the child's name, like a 529 College Savings Plan or a Uniform Transfers to Minors Account. This way, parents, stepparents, grandparents, aunts, uncles and older siblings can all contribute directly to whoever may need the planning.
When there are young children dependent on an adult for income or savings toward financial goals, insurance and other protection plans are critical to include in the financial picture. I've seen some divorces where life insurance was mandated as a stipulation of the divorce agreement, but in the case of death, divorces without this mandate, and parents who were never married, many do not maintain sufficient insurance coverage.
Insurance protection can be used to ensure continued child support, education funding, lifestyle expenses, and replacement of debt.
Having an estate plan in place is especially crucial for blended families. Estate planning involves designating your wishes in the event you die or become incapacitated, including who becomes a dependent child's caretaker and conservator. When die or become incapacitated without a properly constructed estate plan, including a trust, then a lengthy, costly, and public court proceeding takes place.
Additionally, like in the earlier example, it's critical to consider the impact of changing wealth over time. For many families, parents can become wealthier as they get older, potentially causing children from later marriages to end up with more unless it gets planned for in the estate planning process. The reverse could also be true with financial setbacks, illnesses, and injuries.
Financial planning for blended families requires a thoughtful approach that considers unique dynamics, priorities, and relationships. Open communication and proactive planning are vital to navigating financial challenges while fostering harmony in blended families.