Managing Your Money

Avoiding tangled finances and estate snafus in blended families

Blended families are those created by the marriage or common-law relationship of partners with children from a previous relationship. They are becoming almost as common in Canada as the traditional nuclear family.  But, unlike the traditional husband and wife model, blended families face a number of additional complexities when it comes to financial and estate planning.  It’s tough enough to merge two families, typically after the divorce or death of a spouse, let alone working through the emotional and monetary ramifications of financial and estate planning as they relate to federal and provincial laws regarding retirement plans, life insurance, wills and probate issues.

Financial planning for the new family

People who get involved in a second relationship later in life (say in your 40s or 50s) are more likely to have significant assets and, even though the general rule is that only assets accumulated during the marriage are divisible, having a prenuptial agreement or marriage contract may be an important consideration.

Agreeing on short- and long-term financial goals needs to be a high priority, especially when you have less time to work together to achieve your life goals or save for retirement.  A good first step is to carefully review both sets of income and expenses and create a family budget.

Existing legal obligations may complicate matters.  In some blended families one spouse will have to make child support and/or spousal support payments to his or her ex-spouse. 

Estate planning for your new family

In most provinces, getting married renders any previous will void. So even if you included your children as beneficiaries in a previous will, when you get married, that will may be of no effect.   You’ll need to redo your will, but a standard will may not provide guarantees that your children will receive the inheritance you’d like them to have.  For example, if all your assets are under joint ownership and you leave everything to your surviving spouse, he or she is not required to leave any money to the children from your previous marriage.  And even if the surviving spouse wishes to leave money to the stepchildren, if that spouse’s will includes a general direction that all assets go to ‘the children’, the law may interpret that to mean natural-born and adopted children, not stepchildren.

One way to ensure children from a previous marriage receive their inheritance is to leave your estate to your spouse in trust.  Or, if you think a trust would be too difficult to administer, an alternative solution is to bequeath a set amount to your children and leave the rest to your surviving spouse.  You must leave sufficient funds to your surviving spouse, however, or your will could be challenged under provincial laws.

There’s no doubt blended families face unique financial and estate planning challenges.  There are many complexities to work through – including the fact that different jurisdictions have rules that work in unexpected ways.  For example, in some provinces, a marital home brought into the new marriage by one spouse may be shareable even if it was fully paid for prior to the marriage.  Quebec operates under a different code of law than the other provinces and requires different estate planning solutions. 

For these and many other reasons that could significantly affect the financial security of your blended family, you should always include a professional financial consultant and an estate-planning lawyer on your financial team. 

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.