NEW YORK (Reuters) - The complexities of modern families, which can often include children, stepchildren and an array of ex-husbands and ex-wives, can make financial advisers feel more like therapists.
Still, it is essential that they are equipped to handle -- and ready to discuss -- sensitive issues dealing with money and inheritance, and the passions that they can provoke.
"It's not exactly a shrink session, but (couples) are often talking about issues they've never discussed before," said Jane King, a Wellesley, Massachusetts-based adviser. "I have to play devil's advocate."
Clients often struggle with how to treat each child or stepchild fairly, which does not necessarily mean dividing assets equally. They must take into account money each child might receive from an ex-husband, wife or grandparents.
King said she helps clients by discussing her own situation as a stepmother to her husband's two children. She said she feels more money should be set aside for the child that she and her husband have together than for his other children as their mother also gives them money and much of their education has already been paid.
"It can be a shock for people to hear, but being fair does not always mean splitting everything equally," said King.
The two most important documents for an adviser to recommend for clients planning to remarry are a prenuptial agreement and an estate plan, say advisers.
Each spouse's assets earned before the marriage should be kept in separate accounts, while any income earned after the marriage can be put into another account.
In the case of investment accounts established before the marriage, any interest or dividends should be pulled out of the account so principal and income are not mixed, said Martin Shenkman, an estate planning attorney in Paramus, New Jersey.
In terms of dividing an estate, advisers often recommend that a client set up a trust that will support a surviving spouse while he or she is alive and then the money will pass to the children when the spouse dies.
However, this can cause problems if there is a big age gap between the client and new spouse, who may be only a few years older than the children from the first marriage, said David Handler, a Chicago-based attorney with Kirkland & Ellis.
"She might die when she's 90, which means the kids won't inherit anything until they're 80," said Handler.
In most situations, it is better to separate the inheritances, said Handler. The client can take out a life insurance policy and name his children from his first marriage as beneficiaries. It is best to put the policy in an Irrevocable Life Insurance Trust to ensure it is protected from creditors or the children's spouses if they get divorced, said Handler.
Another issue that clients face is deciding whom to name as holding power of attorney, said Robert Rabkin, an accountant based in Teaneck, New Jersey. This person can influence how assets are divided.
Even if the client trusts his spouse, he should consider giving an old college buddy or family friend power of attorney to avoid potential conflicts.
A friend may also have more sensitivity to the different parties than a fully independent person, such as an attorney.
"An independent person is more likely to say, 'this is what it says in black and white, we can't move an inch,'" said Rabkin.
Advising clients with complex family lives takes sensitivity and the usual priorities of estate planning can shift, said Handler.
"One issue is trying to reduce taxes, but the bigger issue is trying to keep the peace. No one cares about taxes when they're battling over money," Handler said.
Reporting by Helen Kearney, editing by Matthew Lewis