Financial planning for couples entering their first marriage and who have no children from any previous relationship is relatively easy to navigate. However, the traditional ‘nuclear’ family is no longer the norm and financial planning has had to evolve to cater for more diverse, and often complex, family structures. The majority of families in South Africa now include a blend of people related by blood, through adoption, bound by marriage (same-sex or heterosexual), or part of a non-marital union – and planning for the financial needs of such can be complex. In this article, we explore the unique financial planning needs of blended families.
Maintenance commitments
Entering into a new relationship with maintenance obligations to an ex-spouse and/or children, complexities can arise. An ongoing financial commitment to a previous spouse or child can be a source of contention in a new relationship, particularly if you’re planning to have children together. You may find yourself faced with competing financial priorities, struggling to honour your financial commitments to a past relationship while wanting to build a financial future with your new partner. This tension can be exacerbated where your previous marriage ended acrimoniously, where your ex-spouse and/or child make unreasonable financial demands on you, or where your new partner is less than understanding of your financial obligations. Many divorced women with ex-husbands who regularly renege on their maintenance obligations are placed in similarly uncomfortable positions when entering new relationships. If your ex-spouse regularly fails to pay maintenance, your new partner or spouse may become resentful at having to provide financial assistance for children that he/she is not legally obliged to support. The dynamics of divorce, stepfamilies and blended families are generally intricate and emotive, and very often the guidance of an experienced financial adviser can help navigate the complexities of blended finances.
Marital regime
Couples marrying later in life are likely to have more complex ante-nuptial agreements as a result of the wealth that each has accumulated prior to the marriage. It is always advisable to seek guidance from an experienced attorney when structuring your marriage contract, bearing in mind that certain assets are excluded when calculating the accrual. These include any assets that accrue to a person before the marriage, any inheritance, legacy, trust, or any donation received by a spouse during a previous marriage. Couples can expressly include or exclude certain assets in the ante-nuptial contract depending on their circumstances. For instance, a couple can expressly exclude their retirement fund benefits from the accrual providing that the ANC is worded accordingly. Where you enter into a new relationship but choose not to get married, bear in mind that you may be exposing yourself to significant financial risks, keeping in mind that our law confers no legal status on couples who live together rather than get married. Ideally, couples living together should sign a cohabitation agreement and ensure that they make adequate provision for each other in terms of a valid will.
Retirement funds
Another important factor when it comes to planning for complex family structures is the issue of retirement fund beneficiary nomination. In the case of retirement funds, bear in mind that your beneficiary nomination is merely a guide to the fund trustees as to how you would like your benefits distributed in the event of death. However, the trustees are obliged to consider the circumstances of all your potential financial dependants – a process which could take up to a year to complete – before deciding how your death benefits will be distributed. This means that, even though you may have nominated your current spouse and your mutual children as beneficiaries to your retirement fund, the trustees could find that your ex-spouse, children from a previous relationship or an illegitimate child meet the criteria of financial dependency and are eligible for a share of the death benefit.
Bequeathing to minor children
Providing for loved ones in a blended family can be further complicated if you intend to bequeath assets directly to minor children. In terms of our law, children under the age of 18 have limited contractual capacity and are therefore unable to inherit directly. Assets bequeathed to a minor child may be administered on the child’s behalf by their legal guardian which could, for instance, be your ex-spouse – a situation that could be further exacerbated where the minor child has more than one legal guardian. Generally, when it comes to assets intended for minor children, the best solution is to set up a testamentary trust in terms of your will and to nominate the trust as the beneficiary of the policy. This means that, upon your death, those assets will be transferred to the trust where they will be managed by your trustees in the best interests of your minor children.
Will
If you die without a valid Will, your closest relatives will inherit from you in accordance with a strict, predetermined order of inheritance as set out by the Intestate Succession Act of 1987, with your spouse and children, including adopted children and children from a previous relationship/marriage, benefiting first. This means that, unless you have formally adopted your stepchildren, they will not stand to inherit from your estate should you die without a will. Further, if you and your partner are living together but unmarried, your partner may not stand to inherit from you if a permanent relationship cannot be established. As such, your will is a powerful tool to make adequate provision for your loved ones, including natural, adopted or stepchildren, a life partner, aged parents who rely on you for financial support, or even a former spouse who you want to provide for in your Will.
Medical aid
In terms of the Medical Schemes Act, any person who is financially dependent on you can be registered as a dependant. This includes your spouse or partner, children under the age of 21, children older than 21 who have mental or physical disabilities, aged parents, and immediate family in respect of whom you are legally liable for family care and support, although the scheme may require that you provide proof of such dependency. This means that you could have your minor children from a previous relationship registered on your medical aid, together with your current spouse and children, as well as your aged parents. The same applies to your gap cover benefit, although there may be restrictions in terms of the number of dependants you can include on a family gap cover policy or in respect of the age of a dependant in the case of registering an elderly parent.
Have a wonderful day.
Sue
