Financial planning strategies for blended families

With the traditional nuclear family no longer the norm, financial planning has had to evolve to cater to blended families and their unique dynamics. Whether bound by marriage, adoption, or partnership, blended families face a complex mix of emotional and financial obligations. Here are six key planning areas to consider:

 1. Navigate maintenance with clarity: Entering a new relationship while honouring maintenance obligations to an ex-spouse or children can cause tension. Competing financial priorities may emerge, especially if you’re building a new family. Conflict often arises when an ex-spouse makes unreasonable demands or defaults on payments, leaving your new partner to cover shortfalls. This dynamic can quickly become emotionally and financially charged, particularly if children are involved. The complexities of blended families require honest communication and, where necessary, the guidance of a financial adviser to mediate expectations and responsibilities.

 2. Choose the right marital contract: Later-in-life marriages often involve more complex antenuptial contracts due to the accumulation of assets. Note that spouses can opt to exclude pre-marital assets, inheritances, trust interests, or donations from the accrual, as well as retirement fund benefits if expressly stated in the contract. Those choosing to cohabit rather than marry should fully understand the financial risks involved, as South African law does not automatically confer rights on cohabiting partners, regardless of the duration of the relationship. As such, a cohabitation agreement combined with valid Wills is essential to protect both partners.

3. Understand retirement fund distribution rules: When it comes to retirement funds, it’s important to understand that your beneficiary nomination serves as a guide rather than a binding instruction.  This is because fund trustees must consider the needs of all financial dependants before distributing the death benefit, a process that can take up to a year. Even if you nominate your current spouse and children, the trustees may allocate a portion to an ex-spouse, children from previous relationships, or even an illegitimate child if they qualify as financial dependants – which can lead to unexpected outcomes if not properly planned for.

4. Structure bequests for minor children carefully: Minor children cannot legally inherit directly, as they have limited contractual capacity. If you bequeath assets to a minor child, those assets may be managed by their legal guardian, who could be your ex-spouse. This can be problematic if there is conflict between guardians or if multiple guardians are involved. A better solution is to set up a testamentary trust in your will, naming the trust as the beneficiary of any assets or policies. This ensures the assets are managed by trustees of your choice, in line with the child’s best interests.

5. Draft a will that reflects your family structure: Without a valid will, your estate will devolve according to the Intestate Succession Act, which prioritises spouses and biological or legally adopted children. Notably, stepchildren are not recognised unless formally adopted. Similarly, unmarried partners may not inherit unless a permanent relationship can be proven. A Will allows you to make deliberate provisions for stepchildren, life partners, aged parents, or even a former spouse you wish to support, so prioritise drafting a valid Will that gives full expression to your wishes.

6. Align your medical aid and gap cover: In terms of the Medical Schemes Act, anyone who is financially dependent on you may be registered as a dependant. This includes your spouse or partner, minor children, disabled adult children, and even aged parents, provided dependency can be proven. While most medical schemes are flexible in this regard, gap cover policies may impose limits on the number of dependants or the age of qualifying family members. As such, be sure to check the conditions of your specific plan to avoid complications in the event of a claim.

With open communication and thoughtful financial planning, you can protect your loved ones who form part of your blended family. From maintenance and retirement planning to medical aid and Wills, every detail is important. A well-crafted financial plan can help you honour past commitments while securing your financial future.

* Tapfuma is a Certified Financial Planner professional at Crue Invest.

PERSONAL FINANCE