Watch an episode of The Brady Bunch and you might be reminded of how much things have changed. In the early '70s, the blended family structure was a rarity, but today as many as 40 percent of all Americans have a step-relative, be it a parent, child, grandparent, former spouse or in-law. The finances of a blended family can be tricky. It is important to keep in mind that legal and financial advice can keep your finances as healthy as possible if you are separated or divorced, or are in the process of creating a blended family.
SOME COMPLICATED AREAS OF FINANCE
There are tax implications involved with every change in your family structure, including divorce, remarriage and taking on stepchildren as dependents. You should speak to a lawyer, or a tax advisor, about your family structure to avoid inadvertently paying too much in taxes - or violating tax law.
Claiming children as dependents
If both parents support the children, then they both have a claim to declare the children as dependents. In some cases, the court needs to resolve the issue. Some parents take turns, claiming the children every other year. If you are supporting stepchildren as well, you might also be able to claim them as dependents.
Financial aid for college
College tuition can be an enormous expense and many families spend years planning for it. If a stepparent marries the biological parent of a college student, the stepparent's income is considered in the calculation of the child's financial aid eligibility. This can complicate matters if the stepparent is not contributing to the tuition payments.
It is common and understandable for biological children to feel some financial competition with their parent's new stepchildren. To avoid tension among blended family members, it may be desirable to create an estate plan that addresses everyone's needs.
Combining families is complicated enough without the worry of financial complications. If you are creating a blended family, speak with an estate planning attorney who can help you draft a premarital agreement and use other financial tools to make the transition smoother for everyone.