Blended families and money: How to protect assets fairly

About one in 10 families in Australia is a blended or step family, according to census data, and this trend has increased in recent years. Blended families can work well, but it’s best to aim to avoid any potential problems with the division of money and other assets. These may occur when there are children from previous relationships, a new spouse, shared assets and sometimes former partners in the background, making the question of what is ‘fair’ quite complex.

Here are the most important principles for protecting assets fairly in a blended family.

Define what ‘fair’ means to you

Fair does not necessarily mean equal. You may want all children treated equally, or to prioritise financial security for your current spouse while ensuring children from a previous relationship eventually inherit family wealth. Without clarity, assumptions take over, and assumptions are where disputes may begin.

Therefore, before preparing documents, be clear about your priorities:

• Is lifetime security for your current partner your primary goal?
• Do you (and perhaps your new partner) want to preserve particular assets for biological children?
• Should jointly-created wealth be treated differently from pre-existing assets?

Having a clear understanding of your intentions yourself makes it easier to create a legal structure that reflects them.

Avoid relying on goodwill

A person in a second marriage may leave everything to their surviving spouse, trusting they will “do the right thing” later for their deceased partner’s children.

The problem with this is that they are not legally obliged to do anything of the sort. They could change their own will or enter a new relationship. Assets may be consumed by healthcare or aged care expenses. If any assets remain, their own children may ultimately inherit them instead. Relying on verbal understandings can be precarious.

Legally binding solutions are a better option

You can achieve a balance between asset preservation for your children and financial security for your spouse by incorporating a testamentary trust in your will. This could, for example, allow you to provide income or a life interest in the family home for your spouse, while protecting ownership of the underlying capital for your children.

Superannuation needs special care

Superannuation does not automatically form part of a deceased estate, but you do have the option of making a binding death benefit nomination to indicate how you would like your superannuation benefits to be distributed. If you do not have a valid nomination in place at your super fund, the trustee will decide who receives it. In blended families, this can create tension and disputes.

Review and renew your nomination regularly – at least every three years – to ensure that it remains valid and aligns with your will. There are also tax implications: super paid to a spouse is usually tax-free, but non-dependent adult children may pay tax on some parts of the benefit.

Consider protecting pre-existing assets

You may need to protect assets – such as a family business, investment property or inheritance – brought into a second or later relationship. A Binding Financial Agreement (‘prenup’), created before or during marriage (either formal or de facto), can clarify what happens to assets if the relationship ends.

Communication and transparency will help

Some estate disputes may occur simply because those who expected to inherit are taken by surprise. Adult children who are caught unawares by a will’s provisions are more likely to challenge it.

You don’t need to disclose exact details, but you can reduce conflict by explaining the reasoning behind your decisions at the time you make your will.

Seek advice and review regularly

Protecting assets fairly in a blended family requires accurate planning, clarity, and transparency about intentions, supported by legal structures that will encourage family harmony.

And because blended families change, and assets grow or diminish, estate plans should be reviewed every few years, and certainly after major life events such as remarriage, divorce or the birth of a child. Your financial adviser can help you with the relevant procedures to ensure that your assets are safeguarded and equitably distributed in accordance with your wishes.