Challenges and Strategies for Blended Families Dividing Assets
Dividing assets can be an emotionally charged process for any family, and yet for blended families, passing out slices of family wealth can be especially complex. But the need to divide assets in a blended family is a highly normal one across all income classes, with 42 percent of U.S. adults having at least one step-relative in their family.
What blended families share is an acknowledgement that dividing wealth—peacefully, at least—isn’t easy. In fact, 87 percent of blended families admit they struggle with dividing assets fairly, compared with 62 percent figure of non-blended families, according to Family Wealth Report.
Whether a family is blended due to remarriage, adoption, or other circumstances, it's essential that relatives address asset allocation talks head on, so we want to walk through some ways of doing that while keeping peace.
Why is Asset Allocation Difficult for Blended Families?
Blended families face additional complexities when allocating assets for a simple reason: they have more questions to resolve. By adding different types of family roles and staggered times of when individuals entered the family, it’s natural to encounter more decisions and unearth more sensitivities.
Asset division gets ugly in any family, blended or not, when sensitivities cross the line to assumption and accusation, as this often leads to colorful disputes. With individuals entering the family at different times and with different levels of biological and cultural connection, the blended family’s conversation can digress into everyone defending their own credentials as a family member.
Another tension comes in the uneven ways family members feel emotional attachment to possessions.
The truth is, it’s natural for any of us to vary from parents, siblings, and kids when it comes to which items we view as keepsakes and which we see as tradable or disposable.
For instance, in a non-blended family, a longtime family home might be near and dear to one sibling but seen as merely a financial asset by another sibling. In families of any structure, the conversation surrounding the home could spiral into cold remarks that attack someone’s gratefulness, belonging, and loyalty.
In the blended family, these tensions can be further stoked for a sibling who entered the family later—possibly through adoption or remarriage. It can be a no-win dynamic: If theirs is the nostalgic view, they might feel the need to defend why. If their thinking is more transactional, they risk being characterized as financially motivated in their relationships.
Blended Families are Avoiding the Issue
It can be detrimental to procrastinate division-of-assets conversations, yet that’s often the case for blended families.
Among families with children from previous relationships, a majority (63 percent) haven’t discussed inheritance with the kids, says BMO Wealth Management. In some cases, it may be because the parents themselves have avoided communicating with each other to craft a plan. Nearly 60 percent of blended families haven’t updated their estate following remarriage, according to TD Wealth.
Though likely coming from the best intentions of conflict avoidance, this under-the-rug approach used by many blended families runs the risk of creating even bigger tension in years to come, as 28 percent of blended families don’t have a plan in the event of a parent’s death, according to BMO Wealth Management.
Strategies for Blended Families to Divide Their Assets
Mature, open communication
Being open and honest communication is critical, as it limits misunderstandings and conflicts in years to come. (A Charles Schwab study revealed that children from blended families were twice as likely as kids from non-blended families to not receive the inheritance they’d expected.) It’s better for family members to be straightforward about their assumptions and their desires, rather than waiting until later to speak their minds or feel their expectations dashed.
Prenuptial and post-nuptial planning
Blended families often benefit from prenuptial or post-nuptial agreements, which can, from the outset of a new relationship, clarify expectations and prevent misunderstandings in the event of a divorce or the death. While these agreements may not be romantic, they provide protection and peace of mind for all parties involved.
Third-party mediation
A neutral third party can be a constructive, disarming presence in the decision-making process. A family mediator or financial planner can help facilitate discussions, provide objective advice, and mediate disputes. This can be particularly helpful when it comes to dividing assets that have both sentimental and financial value, like a home or business. (Our team at CM Wealth often fills this mediating role for our clients while also supplying financial advice on estate planning, tax ramifications, and so on.)
Revisit the conversation
Remember, estate planning is an ongoing process. When the family experiences a death, birth, marriage, or other significant change, it’s normal to update their estate plan to reflect new circumstances.
It’s commonplace for all families, from non-blended to modern, to encounter strife when they allocate assets. Having been around since 1983, CM Wealth has worked with families of all types, so we understand the universal nature of these pain points as well as the truth that each family is uniquely its own. Our team is equipped, in both preparation and presence, to walk you through financial implications of your allocation plan and to participate as a third-party mediator as you lead your family into a peaceful and prosperous legacy.
The Blended Family’s Checklist to Peaceful, Productive Asset Allocation
Consult this worksheet to ensure your family approaches division-of-assets discussions with a healthy mindset.
What assets do we need to divide? Make a list of assets to be distributed, including financial assets, real estate, personal property, and sentimental items.
What are our legal obligations? Gather and review your family’s prenuptial and postnuptial agreements, as well as any other legal documents that dictate how assets should be split.
How will our stepchildren or adopted children be included in our division of assets? Consider the needs and interests of all family members, including stepchildren, when dividing assets.
How will we resolve disagreements? Determine how you will compromise in the event that you need to, decide lengths of time to drop and return to tense conversations, set a shared plan to pause or end conversations with as much unity as possible, and have a timetable for when you want to involve a third-party mediator.
Do we understand the tax implications of dividing assets? Talk with your financial team about how different ways of allocating assets will alter estate taxes and capital gains taxes.
What’s our idea of “fair”? From the outset, know how you’ll ensure fairness in the division of assets, whether it’s by involving appraisers to determine an asset’s value or a mediator to make sense of competing sentimental claims over an asset.
How can we ensure that the division of assets does not damage our relationships? Create a set of baseline behavioral expectations and have family members pledge to uphold the standard, minimizing potential damage to your relationships.