You may have been through this before, and it probably did not turn out so well. You and your new spouse want to be optimistic. However, you both likely experienced money problems in past relationships and don’t want to make the same mistakes again.
You are wise to carefully consider your options. Here are the primary reasons why you should merge money in a blended family, and some suggestions on how to head off any potential money problems before they arise.
1. One of You Is Paying Child Support or Spousal Support
If one of you is paying support from a previous relationship, these funds should be directly deducted from wages or come from a separate account other than the joint household account. Why? If you default and have arrears, in many states, your joint account can be levied to pay those arrears, putting your spouse’s money at risk.
2. One of You Has Poor Credit or a Bankruptcy
If one of you has poor credit or has filed bankruptcy, this may indicate poor money management in the past.
You must have a frank conversation about your financial situation and your budget to make sure you are on the same page about spending. This is crucial.
A leading cause of divorce is financial problems. So, establish an agreed financial plan from the start and revisit it periodically to ensure you both are staying on track and determine whether changes need to be made.
Have individual credit cards, not joint, for personal expenses, if future credit problems arise. If you have a joint credit card, agree to only use it for household and family expenses, not personal expenses.
3. One of You Has Student Loans in Default
Another reason why you should merge money in a blended family is student loans. If one of you has student loans and defaults on payments, their accounts will almost certainly be levied, their wages garnished, their tax refunds seized, and they will be hounded by the government until that debt is repaid with interest.
To avoid joint assets being seized to pay individual student loan debt, maintain separate bank accounts. Any substantial assets such as real property or motor vehicles should be in the name of the other spouse only.
Even if one of you has student loan debt and is currently on the account, it is prudent to take the afore-mentioned precautions if the debt is substantial and there is any chance the borrower’s income stream or ability to pay can be compromised.
4. One of You Has Substantial Credit Card Debt
If one of you comes to the marriage with a lot of credit card debt, you must have a conversation about that. How did this debt amass? It may be that in the absence of emergency savings, there was a credit card charge. In that case, create a plan to pay it off.
If the debt amassed due to overspending, or living beyond means, craft a family budget and discuss individual budgets. You must come to an agreement about how much is coming in and how much is going out, and for what.
If there is not enough money to fund expenditures, then discuss whether additional or alternative income streams. Can you get more hours at work? Can one of you take on a part-time gig job, such as babysitting or Uber?
The upshot is, if your support obligations, amount of debt, or spending habits differ substantially, you must talk about it. Initially, at least, it is best to maintain a joint account for household and current family expenses and separate accounts to fund personal obligations and debt.
If your earnings differ, plan to contribute a fair amount each to the joint account and know that amount will not and should not be equal.
Talk frankly about your money. You can avoid making a financial problem into a relationship problem simply by being open, planning ahead, and revisiting your spending periodically. Here’re some tips for merging finances in a blended family.
