May 30, 2017

Splitting Expenses in Blended Families

This entry is part 3 of 5 in the series Finances for Blended Families

Being part of a family is wonderful, yet at times can be exasperating and frustrating. We get love and support when life throws challenges at us, but paying the bills, well, that’s a less thrilling family experience. Blended families are the same, just more so. With kids from previous marriages in the picture, splitting expenses fairly might seem to require advanced degrees in economics, math, and ethics. This article suggests a simple way to do so reasonably, without leaving anyone feeling taken advantage of.

Simplest Expense Splitting is not Always Fair

When a young couple first gets together, with no significant assets or debts, and any kids that come along are shared, simply sharing all income and expenses is simplest and reasonable. At most, if the two of you don’t see eye to eye on everything, you can each take a weekly “allowance” for personal expenses which can be spent on whatever you please without needing anyone’s approval. When marrying later in life, and especially if one or both of you has kids from previous marriages, the picture gets complicated. Splitting all expenses equally, which some do, may not work for you. If your spouse makes 2 or 3 times more than you do, splitting evenly the mortgage or rent might bankrupt you, while leaving your spouse relatively well off.

Suze Orman recommends splitting expenses in the same ratio as your income (assuming incomes are not shared). For example, if you make $30,000 a year and your spouse makes $50,000, you’d pay 3/8 of expenses (your $30,000 divided by the $80,000 total) while your spouse covers the remaining 5/8, leaving each of you the same fraction of your incomes. If your total expenses are $72,000, your portion would be $27,000 leaving you with $3000 or 10% of your $30,000. Your spouse would pay the remaining $45,000, leaving $5000 of his/her $50,000, which is also 10%. This leaves your spouse with more than you have left, which is not a hallmark of equal partnership.

Another problem is that you should not be responsible for your step-kids’ expenses, be they major ones such as college tuition, or minor day-to-day ones like clothes, grooming, and the occasional field trip. That’s up to your step-children’s biological parents. Similarly, your spouse isn’t responsible for your kids from previous marriages. Some couples address this by splitting expenses based on number of kids each brought to the marriage. If you have one kid from a previous marriage and your spouse has none, this would have you covering 2/3 of all expenses. This may be simple but is unfair. First, the cost of adding a kid to a two-adult household is not 1/3 of all expenses. Second, if one kid has expensive hobbies, goes to private school, or requires specialized care, costs for that child may be much higher than a step-sibling’s.

A Simple and Reasonable Solution for Splitting Expenses

As mentioned in a separate article on sharing income, marriage is a partnership, so a good potential solution is to decide together which expenses should be shared, and which should be individual. Then, the two of you share all income, cover joint expenses from the joint kitty, and split evenly whatever is left over. Personal or individual expenses are then covered from the split amounts. You might ask, “What happens if what’s left is not enough?” The answer is just as in cases where all income and expenses are shared – if there’s plenty of month left over when the money is gone you need to trim expenses, bring in more income, or both. In a blended family, you can cut your own expenses without needing anyone else’s cooperation, and in parallel work with your spouse to reduce joint expenses. As most of us have experienced, these solutions are simple, but not easy to implement. Nonetheless, short of winning the lottery or inheriting a fortune, living within our means is the only way to avoid bankruptcy.

What Expenses Should Be Joint Expenses and Which Should Be Individual Expenses?

Do you really want or need the same number of pairs of shoes as your wife does? Do you think buying all those DVDs your husband wants is a good way to spend your money? Are you fuming over paying for your wife’s gifts for all her girl-friends – the ones you wouldn’t even recognize on the street? How about your husband’s poker nights, when you’re gently invited to visit with a friend or just stay in the den? Do you think the money he bets should come out of your joint account? These are just a few examples of expenses you don’t necessarily want to share with your spouse.

So, what expenses should you share with your spouse, and what expenses should be individual ones? Only you and your spouse can decide what’s right for you. The two of you should sit down together and discuss things openly. The lists below are intended to provide a starting point for that conversation, not to dictate what you should do.

Suggested joint expenses

  • Housing expenses such as mortgage, rent, utilities, furniture, furnishings, insurance, lawn care, cleaning services, etc. (one could argue that if one partner has a bunch of kids from a previous marriage s/he should cover more of this, but unless the situation is extreme, be generous with each other and share equally)
  • Taxes including federal, state, and local income taxes plus property taxes
  • Any business expenses (these are needed to bring in joint income so they’re a shared interest)
  • Automotive expenses including car payments, auto insurance, licensing, parking, gas, etc.
  • Groceries (another category you could decide to split unevenly if the number of kids from previous marriages is large and very uneven, but it’s simpler and seems less petty to share this evenly)
  • Medical expenses and health insurance premiums for the adults and any shared kids
  • Life insurance with each other and/or shared kids as beneficiaries
  • Long term care, disability insurance, etc.
  • All expenses for any shared kids
  • Adults’ tuition and/or continuing education expenses (this will enhance your ability to bring in joint income so it’s in your shared interest to cover it)
  • Bank fees and interest for joint liabilities
  • Joint savings and investing for retirement and family emergencies
  • Family vacations and outings including eating out (again, you could argue for each partner covering more or less than half, based on the number of kids from previous marriages, but you’d be better served not to quibble and simply share this equally)

Suggested individual expenses (in this list “kids” refers to those not shared by the two of you)

  • Kids’ school/college expenses including college savings
  • Kids’ medical expenses and health insurance premiums
  • Kids’ clothes, grooming, activities, allowances, etc.
  • Adults’ clothes, grooming, activities, hobbies, etc.
  • The portion of life insurance with kids as beneficiaries
  • Bank fees and interest for individual liabilities
  • Individual savings and investing (e.g. for personal spending goals)
  • Individual trips such as his fishing, hunting, or motorcycle trip with his buddies, or her spa trip with her girl-friends (vice versa if you’re less traditional)

Remember that even after you come up with your own agreed-upon version of the above lists, you should consider them a work-in-progress which can and should be tweaked and adjusted as you see what works for the two of you and what doesn’t, and as your life situation evolves. At times, helping out your partner with his financial emergencies by covering his individual expenses from the joint account is appropriate. After all, you’re partners, and seeing him struggle financially when you can help is not very gracious.  Finally, anything that works for the two of you, whether it’s identical to the above, or very different, is perfect for you.

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Series NavigationIncome Sharing in Blended FamiliesAccounts and Debts in Blended Families

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