About one in 10 families in Australia is a blended or step family, according to census data, and the trend has been climbing in recent years. Blended families can absolutely work well, but it’s worth getting ahead of any potential issues when it comes to dividing money and other assets. With children from previous relationships, a new spouse, shared assets and sometimes former partners still in the picture, working out what “fair” actually means can get pretty complicated.
Here are the key principles for protecting assets fairly in a blended family.
Define what “fair” means to you
Fair doesn’t necessarily mean equal. You might want all children treated the same, or you might want to prioritise lifetime financial security for your current spouse while making sure children from a previous relationship still inherit family wealth down the track. Without clarity, assumptions take over, and assumptions are usually where disputes start.
Before any documents get drafted, get clear on your priorities. Is lifetime security for your current partner the main goal? Do you (and possibly your new partner) want to preserve specific assets for biological children? Should wealth you’ve built together be treated differently from assets you brought into the relationship? Once you’ve worked out what you actually want, it’s far easier to put a legal structure in place that reflects it.
Don’t rely on goodwill
Plenty of people in a second marriage simply leave everything to their surviving spouse, trusting that they’ll “do the right thing” later for the kids from the first relationship.
The trouble is, they aren’t legally obliged to do anything of the sort. They could change their will, enter a new relationship, or see the assets eaten up by healthcare or aged care costs. If anything is left, it may ultimately go to their own children instead. Relying on verbal understandings is a risky way to handle something this important.
Lean on legally binding solutions
You can strike a balance between asset preservation for your children and financial security for your spouse by setting up a testamentary trust in your will. This could, for example, give your spouse income or a life interest in the family home, while protecting ownership of the underlying capital for your children.
Superannuation needs special care
Super doesn’t automatically form part of your estate, but you do have the option of making a binding death benefit nomination to spell out how you’d like it distributed. Without a valid nomination, the trustee of your fund decides who gets it, and in a blended family that’s a recipe for tension.
Review and renew your nomination regularly, at least every three years, to make sure it’s still valid and lines up with your will. There are also tax implications worth keeping in mind: super paid to a spouse is usually tax-free, but non-dependent adult children may pay tax on parts of the benefit.
Protect pre-existing assets
You may want to protect assets you’ve brought into a second or later relationship, such as a family business, an investment property, or an inheritance. A Binding Financial Agreement (often called a “prenup”), set up before or during the relationship, whether formal marriage or de facto, can spell out what happens to those assets if the relationship ends.
Communicate and be transparent
A lot of estate disputes come down to surprise. Adult children who are caught off guard by what’s in a will are far more likely to challenge it. You don’t have to share exact figures, but explaining the reasoning behind your decisions while you’re around to do so can take a lot of heat out of things later on.
Seek advice and review regularly
Protecting assets fairly in a blended family takes careful planning, clarity about your intentions, and the right legal structures sitting behind it all to keep the peace.
And because blended families change, and assets grow or shrink over time, estate plans should be reviewed every few years, and definitely after big life events like remarriage, separation or the birth of a child. A financial adviser can walk you through the steps to make sure your assets are protected and distributed the way you actually want. This is the kind of work we do with blended families across Newcastle and the Hunter as part of broader financial planning and retirement planning conversations, alongside your solicitor and accountant where needed.
Talk to Virtuous Wealth
If you’d like a fresh look at how your assets are structured and whether they reflect what you really want for your family, we’d love to chat. Get in touch with our Newcastle team to book a no-obligation conversation.
This article provides general information only and does not take into account your personal objectives, financial situation or needs. Before acting on any information, you should consider its appropriateness, having regard to your own circumstances, and seek personal financial advice from a licensed adviser.
