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Personal finance: Yours? Mine? Ours? How stepfamilies struggle to make the money go round: With one in 10 children involved, expert help is needed to deal with complex financial and inheritance issues.

May 11, 2014

Harriet Meyer



The complexities of life in a stepfamily are prompting a rising number of people to seek advice, say experts. Figures released last week by the Office for National Statistics show that there are now more than half a million stepfamilies in the UK, and one in 10 children is part of one. Changes to child benefit, maintenance payments, and inheritance are just some of the areas that may cause problems.

"Money issues often cause conflict, and we are seeing growing numbers of couples struggling over financial contributions towards "my" children, "your" children and "our" children, as well as questions about support to exes," says Christine Plews, family lawyer at Blake Lapthorn. People may be unaware of the disputes these can cause. Here are some key areas:

Managing finances

Set out a plan at the start of a marriage or partnership. Will you pool resources or keep finances separate? Ensuring a sense of fairness among children is important, stresses Danny Cox from IFA Hargreaves Lansdown. "This can be a juggling act bearing in mind different ages and needs," he says. "However, just as there is no typical stepfamily, there is no one way of managing money - it's what works for you."

Ian and Lucy Haughey, 41 and 33 respectively, run financial guidance service The Plan B Partnership. They believe that any new live-in partner should, ideally, share financial responsibility for stepchildren.

Lucy has two sons from a previous relationship, Sonny, 10, and Charlie, seven, and together they had another, Rufus, three. She says: "The financial and social sacrifices that step-parents make are undervalued - we suggest they must be able to save and pay for all children equally to avoid any problems later. Yes, ex-partners often pay child maintenance - but in this financial climate it hardly touches the sides."

She receives a small sum in maintenance from her ex that is reviewed annually. This is put towards the cost of caring for the two sons from her first marriage.

Child support

Consider whether existing maintenance put in place following a previous divorce or separation may change. One in three families with children from past relationships receives financial support from an ex-partner, according to the latest Aviva Family Finance Report.

"The amount may reduce if they have another family to support," says Melanie Craig, a Leeds-based solicitor.

You must report any significant change in your circumstances to the Child Maintenance Service or you risk a fine or even prosecution. And while a consent order setting out the division of assets and payment of maintenance is legally binding, it cannot guarantee payments will be kept up.

Lucy Haughey adds: "People often don't address financial bindings before a break-up is finalised and they have moved on. So joint debts, mortgage arrears, shared pensions or issues with other credit agreements linger on."

Changes introduced last year to the way in which child benefit is taxed may also have an effect. Households where one partner earns more than pounds 50,000 face a clawback of child benefit.

"Even if you don't marry, but just move in together with your partner's children, you may have to pay a tax charge if they claim child benefit, and you earn more than the threshold," says Sean McCann, personal finance specialist at NFU Mutual. This is 1% of every pounds 100 earned over the threshold, reaching 100% when income reaches pounds 60,000 after pension contributions.

Anita Monteith from the ICAEW Tax Faculty says: "A stepfather may earn over the pounds 60,000 and earn more than his wife. He would then have to pay back all of any child benefit she receives. The natural father may also earn over pounds 60,000 but will be unaffected as he is not part of the household."

Inheritance

Experts say that people are often unaware that stepchildren have no right to inheritance unless written into a will. "Families often fall out about money when someone dies and the arguments can have an extra layer of complexity when there are stepchildren and step-parents involved," says Sarah Pennells, editor of SavvyWoman.co.uk. "Some children whose parents have remarried find they've been cut out of the will entirely, or parents who have a second family may feel hurt that their grown up children expect to benefit when they have younger children who may need more financial support."

Trusts are often used to ensure that certain assets are inherited by particular children. Andrew Swallow from IFA Swallow Financial says the trust will typically be used to provide income to the surviving partner until they die, with the capital then passing to the deceased spouse's children. Chris Shepard, partner at accountant Smith & Williamson, warns that without such a trust the inheritance may pass to the wife or husband. "You're then reliant on them leaving a share to your biological children."

Insurance

Make sure you review any existing life and health insurance policies. "Also check you have nominated your current partner as beneficiary for all your pensions and any work related death-in-service policies," says Jonothan McColgan from IFA Combined Financial Strategies. "It's important to consider who might take over as guardian of a stepchild and the resources that they might need," adds Cox.

Placing life insurance in trust to pay out a lump sum on death for the benefit of a child may offer a solution.

Captions:

Ian and Lucy Haughey with children Sonny and Charlie from Lucy's first marriage, plus toddler Rufus. Photograph by Martin Hunter for the Observer


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Source: Observer (UK)


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