New Marriage, New Family Finances: What's Fair?
by Carrie Schwab-Pomerantz, CFP®, President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.
December 28, 2011

Dear Carrie,

I'm about to get married for the second time. I have two kids, 8 and 10 and my fiancée has two teenagers. Everyone gets along well, but my husband-to-be is a lot wealthier than I and his kids have been raised with very different financial expectations. It's not that I necessarily expect him to now pay for everything for my kids, but at the same time, I don't want them to feel like they get less because they're less worthy. What's fair in a situation like this?

—A Reader

Dear Reader,

Even the most compatible couple can have money problems and blending a family can raise even bigger issues. What's "fair" may be different to different couples, so it's crucial that you and your fiancée have a heart-to-heart now—so that you can find what feels right to the two of you.

Talking it out is especially important because this isn't just about numbers. It's about your feelings and your values—the "glue" that will hold you together as a family. So be open about your feelings. Trust me, by dealing with all these topics openly and honestly now, you can avoid some real heartache down the road.

Also, you don't mention if your ex-spouses are in the picture. If they are, your situation may be even more complicated, so start talking right away.

Start with the two of you
Right from the start it's important for both of you to reveal exactly how what you own, and anything you owe. Full disclosure is essential!

Next talk about how you'll 'marry' your finances. There's no one-size-fits-all formula for everyone, but talk about who will pay for what, and which assets you intend to combine and which you plan to keep separate. Just as an example, if one of you owns a home, will the other buy in?  

Also discuss accounts. To me, a certain amount of financial independence is a good thing. In fact, I often recommend a "yours, mine and ours" approach so that both partners have some autonomy but also work as a team. It's best if both have the same amount of discretionary money even if one earns more.

And finally, how will you split up the financial chores? It's fine if one of you is more involved in your finances on a day-to-day basis, but you should both be involved in all the big decisions.

Talk about the values you want to impart to the kids
You say your fiancée's kids have different financial expectations. That's understandable. However, that doesn't mean your financial values are necessarily different. Discuss what you expect of all the kids. Will they get an allowance? Do you want them to contribute to personal expenses or special costs like a car or a school trip? Will you encourage them to get summer jobs?

If you want to be a cohesive unit, I believe all the kids have to be treated the same—with the same privileges and responsibilities. For instance, you can't buy cars for one set of kids and not the other without creating resentment.

Once you come to an agreement, talk to the kids. They all need to understand what you expect from them—and what they can expect from you. It's probably best to do this as a group. Talk frankly about the new relationship, both the personal and the economic, and how you all can work together. Encourage them to express their feelings and make suggestions.

If it's possible, you each may want to talk to your former spouses about the approach you're taking and the values you want to impart. If there's a difference of opinion here, be honest about it with the kids so they don't feel confused.

Confront college costs
This could be particularly sticky. Once again, if you're really a family, I think the kids have to have the same opportunities. Since your fiancée's children are already teenagers, he may already have their college covered. Is he willing to contribute to your kids' education if necessary? What about your ex? Address this now and come up with a realistic college savings plan to avoid hard feelings later on.

Don't shy away from estate planning
This is another time bomb that should be talked out now. Whether you include each other's children in your estate plans is a personal decision. But no matter if you decide to divide everything equally or keep your estates separate, at the appropriate time, make certain the children know the reality. Even the happiest family can become embittered by financial disappointments.

Consider a prenup
If you haven't talked about a prenuptial agreement, now's the time. Even if you don't formalize it, putting things on paper will help you come to a genuine understanding. None of this is easy but, to me, your long-term happiness depends on it. Best of luck to all of you.

(1211-8382)