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Marriage can be challenging financially for many reasons.
How do you treat individual incomes?
How are shared expenses to be handled?
Is your partner on the same financial page as you?
If one partner is a spendthrift, it does not matter how frugal the other partner is or how much he or she earns.
I have often said, “No matter how much water you pour in, a colander will never fill.”No matter how much water you pour in, a colander will never fill. Click To Tweet
Individuals who are entering their second or greater marriage face even higher financial complexity, especially if there are children from previous relationships involved.
The resulting union from such a marriage creates what is called a “Blended Family,” blending children from previous relationships together into a new family unit.
Even though the early 70’s show, “The Brady Bunch,” made it look easy, as usual what we perceive on television does not accurately depict reality.
I was therefore thrilled when one of my trusted sponsors from this blog, president of Physician Family Financial Advisors, W.Ben Utley, CFP, agreed to a phone interview discussing the financial implications/challenges of a blended family.
What is your experience with Blended Families?
The only experience I have had is through my practice.
I come from one of those weird households where both my parents are married and both their parents are married.
I also married into a family with the same story where my wife’s parents and all of her predecessors are still on their first marriage.
I think there is a lot of luck in choosing your mate.
To me it is not like some “Badge of Honor” that you are not divorced.
I really got lucky when I met my wife.
She has tolerated so much of my idiosyncrasies and given me a lot of room to grow.
She has been kind of the same sweetheart the whole time that I have known her.
I feel like I really got lucky when I spun the wheel.
What are some of the characteristics of blended families that you have noticed in your practice?
It seems to me that people who are in blended families, the marriages seem more mature.
I am guessing here, but it is kind of like you have been through the whole marriage thing and the whole making babies/family thing.
And by that time you kind of know what you want and what you don’t want.
Statistics show that second or greater marriages have a higher divorce rate. This seems to contradict your theory that these couples indeed know what they want. Can you elaborate on this phenomena?
I think that there is parties A and B.
Party A is the one that gets lucky or doesn’t get lucky.
And party B is sort of the ugly duckling, just not marriage material.
A spins the wheel and they wind up with B, the ugly duckling, and they are destined for divorce.
Well B is going to go on and marry.
And they are still not marriage material so they are going to go on and get divorced again.
So I believe the statistics have to be skewed in that direction because of these outliers that literally should not be married.
So that messes up the statistics.
My way of thinking about it is that there is a level of self-awareness that is required.
If you are blissfully not self-aware you can continue to stumble into relationships that are toxic to you or you can continue to be a toxic person.
That would explain the long tale of multiple divorces.
I think that if you are re-marrying and you are self aware you probably have a chance of a stronger marriage the second time around because it is not going to be this magic thing like the first time around but instead it is going to be a very intentional thing the second time around (again provided that you are self aware).
In your experience, what are some of the unique challenges a blended family faces compared to a couple with no prior children?
A lot of it comes down to estate planning.
It is how to divide the estate fairly between the children of A and the children of B.
I can give you an example.
I have a couple that I have served that bought a piano.
In the beginning it was thought that one child would get the piano, but later on they were kind of thinking well we don’t really know who wants to get the piano.
We don’t know who should have the farm.
So we have had a few conversations about who should get these indivisible items.
You can’t really divide a farm, you can’t really divide a piano.
Should it be that the object is sold at market and everyone gets their fair share of it (however you define fair)?
Or should it be that one child has the right of first refusal and then they sacrifice a liquid portion of their estate to get this illiquid asset?
In your experience what does the majority of clients do in this case?
I can say that in my experience there is no “most people approach.” It is a one off.
It is like preparing a tax estimate. It is a very personal thing.
You have to have your own data on it.
Lets talk about various approaches to what is fair.
Let’s say that there is a liquid asset.
One spouse (A) has 3 children, the other spouse (B) has 2 children.
So does that asset get divided 1/5 to each child or does that asset get divided half to A’s children and half to B’s children and then subsequently gets divided among those children.
So basically, is the division going to be per capita or per stirpes?
In the per stirpes example, one child (A1) gets ¼, the other child (A2) gets ¼ and the remaining children (B 1-3) each get 1/3 of a ½, meaning each of those children get 1/6.
In the per capita example, everyone gets 1/5.
I would say that the illiquid assets are probably the greatest point of contention in a blended marriage.
When you talk about these assets you are talking about assets that are gained during the marriage. What about assets brought into the marriage by each separate party?
Assets that are brought into the marriage by separate parties remain separate.
That is something that I would say about blended families that I have seen a pattern in.
I would say typically they bank separately and they consider money to be separate.
For example I serve right now a blended family and they each have their own private engagement with the firm.
The husband has his engagement with the firm and the wife has her engagement with the firm.
I actually deal with them separately.
We manage them as if they were different clients.
They are very different.
I will talk with one.
Other times I will talk with the other.
Sometimes they will come in together such as when we are dealing with estate planning and then I will work with them together.
I have another family where everything is pooled.
They are pooling their income, they are pooling their joint accounts.
But they regard their children differently when it comes to college.
He is paying exclusively for his children for college and then she and he are both paying for their joint children for college.
For the children they had together they consider the college liability a joint liability.
The children he had before they were married are all his problem so to speak.
In that last example about the husband paying separately for college, does the money come from his own premarital assets or is it from his current income?
It is coming out of his income for his children and their income for their children.
I will tell you this that blended families are a lot more work than first marriages.
The single unifying factor that describes the complexity of a [financially] difficult relationship has to do with whether or not they are previously divorced.
What advice do you give to individuals that are about to create a blended family through marriage? And how does each party protect his or her premarital property?
Practically speaking if there is a great disparity in the income or the assets, there should be a prenuptial agreement.
For example, if a doctor comes into the relationship with a couple million dollars of assets and a half million-dollar income and the other spouse comes in with virtually nothing, than I think a prenuptial agreement protects the physician.
And then if they later on decide that they want to share then they can intentionally share.
They can choose to give or they can choose to make joint assets.
If you have people where they have both been divorced before I think the idea of a prenup is a kind of a natural thing that neither one is going to balk at.
However, if one of them has never been divorced, it gets a little bit thornier.
Everyone’s perception of what you share when you share a relationship is different.
Some people think you share all your money.
Other people think you just share your time.
Some just think you share love.
Again it is on an individual basis.
But practically speaking, I don’t get to give that advice.
Because people just get married and either they got legal counsel before or they didn’t.
Very seldom do we [as financial planners] see that life transition of someone about to get married.
You don’t really get an opportunity to lob that advice because they don’t seek it initially, and that’s as if someone would actually ask for that advice.
I would like to create a couple of hypothetical scenarios for blended families you might encounter and would like to see your thought process in dealing with them.
Both partners coming into the relationship with equal footing in terms of assets brought into the marriage as well as future income. What advice would you give?
There are basically 3 financial systems in families:
- His, Hers & Ours
- Hers & Ours
The Ours System.
All the money goes into one pot and is spent by both parties.
They have either great communication or similar spending habits.
In this situation that you described the “Ours System” is probably the most appropriate.
There is a large discrepancy between the two individuals regarding income and/or premarital assets.
That would be appropriate for His, Hers and Ours system.
The His or Hers component is subject to prenup.
Then the [financially disadvantaged] spouse would have their own separate money even if its less.
They would have an Ours pool for paying joint bills.
The Ours pool does not necessarily have to be 50-50.
I have seen situations where the physician makes a lot more than the non-physician spouse.
Let’s say, for example, the physician makes 80% of the income.
In this situation that individual can contribute 80% to the ours pool of money.
It requires score keeping and accounting.
I think some marriages are not ready for that.
But others are perfectly fine with it.
It definitely makes everything fair and it maintains the perception of fairness.
What about the last financial system we did not touch upon?
Hers & Ours:
When I see a woman who has been divorced and remarried, it is always going to be hers and ours
She is going to have some money set aside.
It can be $100k, it can be $10k.
It is going to be solely in her name in an entirely separate institution and it is her money and he can’t lay his hands on it.
I also see that in 1st marriages sometimes (I have encountered resistance when I have suggested that her money be brought into the Ours fold).
I just began to realize that there is something about women that they need or want this.
I am not trying to explain why.
It is just something I have seen many times.
One of the popular series in my blog is my Divorce and FIRE series, which touches on the financial impact a divorce has on each party. Some individuals who were able to retire early when married now lose that financial independence (You can FIRE together, but not apart). Any advice for this situation?
Basically you are financially independent from the world but you are not financially independent from your spouse.
I would suggest that the strongest move would be to work until you can each retire independently.
Of course, that is not necessarily the optimal solution.
The other thing you can do is that you can reduce the amount of time you work and keep your credentials “wet” so that you can go back into the workforce if necessary.
The best advice is to really focus on your relationship and try and prevent a divorce.
Your relationship is your core asset particularly if you are a man.
If you are a man you don’t realize this until you get outside of a relationship but that woman was the nucleus of your universe.
You don’t realize that until you get away from the relationship.
My wife is the reason that I exist.
She is the reason that I work.
She is the reason I get up in the morning.
She is the reason that I have children.
She makes my day bearable and happy.
I would be absolutely lost without her.
A lot of men don’t get that.
They just think that women are easy to come by.
Men think they are so good looking and that they make so much money that finding another mate will be easy. They’re wrong.
There is a fascinating book about this subject that everyone will benefit materially from reading it, “How to Improve Your Marriage Without Talking About It .”
It is literally the best book about marriage I have ever read.
It is true to the title.
It improved my marriage, and it is required reading for people who come to work in my firm.
It is not exactly Venus and Mars but it is kind of in that vein and you begin to see that man’s world and that women’s world and how they come together.
There was stuff in my marriage that I didn’t realize was happening until I read this book.
Your company, Physician Family Financial Advisors has a very focused niche, provided financial services for physicians and their family. Tell me what drew you to this particular cohort?
We are really all about the family part of Physician Family.
I would prefer to work with people that have children and are married.
Family is an unstated value inside the firm.
Children bring context to money.
Imagine a married couple of doctors.
If they don’t have children.
Where is that money going to go?
It’s going to go anywhere it wants to go.
You can literally afford anything you want in this situation if you don’t have children.
All kinds of options and flexibility and all those options are about you.
All the decisions are “You centered.”
The moment you have a child it all becomes about them.
You have a unified theme which is what’s best for our child that day.
You also have less resources than you would have had otherwise.
So now there are two facets that go into planning.
- How do we use our assets?
- And how do we get the best use out of them for our child?
A house comes into play.
A college fund comes into play.
Retirement becomes more difficult.
Paying off your student loans.
You have to have disability insurance because you can’t live on one income.
Life insurance is something that you should really have.
It invokes all of the factors of financial planning that we typically see in one space.
If you have a family, it touches every aspect of the personal subjects that we talk about.
As specialists that is all we do.
We serve people faster and at a lower cost because of economies of scale.
Financial planning is the act of seeing and solving problems before they occur.
I feel problem solving is the most expensive thing to do inside a firm.
Managing assets is easy, its a cakewalk.
When you actually go to actually solve a problem then that requires a skill.
And if we solve the same problem over and over again we get better at it at every time.
As a result we can do it faster and at a lower cost.
We have created a great resource page aimed specifically at the challenges physicians face in “medical marriages” or relationships.
I have even been featured in the Married to Doctors Podcast on the topic, “Are We Raising Spoiled Kids?”
As you can see marriage and family is a subject I am passionate about.
I feel like when we’re helping people get their finances together, we’re helping them keep their families together.
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
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I’m really enjoying your articles and thoughts. I feel like the ‘spook by the door’ as im.not a physician. I’m a retired physical therapist. This may seem absurd, the first 20 years of my career I did not consider it a career, just a series of jobs. All of which I enjoyed. It wasnt until before 1990 one therapist who specialized in geriatric before it was a specialty in our profession and who was a PhD in our profession. She gave 20 hour weekend seminars. She brought up the word career and encouraging research, becoming an expert in out profession,… Read more »
Appreciate the feedback and glad you are enjoying my posts. Wow you have quite a story there and sorry you have gone through so much. Health is one of the great unknowns we all face and you never know what will happen as you age. It does sound like you are making the best of the hand you were given and kudos for you to have a fully paid off mortgage and no credit card debt. Have a wonderful Easter and thank you for taking the time to comment.
This was interesting, X. Though you know we are still in the newlywed territory and don’t have this dynamic in my family, it’s interesting to hear how others may deal with blending, mixing and matching. I always learn something new on your blog 🙂
Well I hope this never applies to you but yeah, unfortunately there is a good bit of the general population that does indeed apply to.
Appreciate the comments as always 🙂