Switching from shared Apple ID to separate Apple IDs with Family Sharing?

My family (me, wife and 2 kids) all share the same Apple ID. We share it for everything (App Store, iCloud, etc.). We did this because I didn't want to purchase the same music or apps multiple times. This has worked well for several years. But with iOS 8, we can use Family Sharing, but not if we share an Apple ID (at least not when using a shared Apple ID on iCloud). So my question is, how do we switch from a shared account to separate accounts using Family Sharing, while not losing access to any apps or music? I've seen many previous posts (pre-iOS 8) state that I can create new Apple IDs for my wife and 2 kids, then just use them for iCloud and leave the App Store associated with our existing shared Apple ID, but then when they go to update apps, they'll need to enter my password (which my kids do not know, since they don't currently need the password to updates apps with the shared Apple ID. When they want to purchase a new app, be it free or paid, they have to come to my wife or me to enter the password.)
What I'm think is this. Let me know if this would work:
1) Create new Apple IDs for my wife and kids.
2) Before changing anything on their iPhones, go into my phone (which will remain on our existing Apple ID) and turn on Family Sharing and add them to my family so we can share purchases.
3) Once Family Sharing is enabled, change their iCloud login to their new Apple ID accounts. That enables Family Sharing on their devices and they'll be part of my family.
None of the above steps solves for the "you must enter Dad's Apple ID password to update your apps" problem. So my question is, should I also change their App Store account to their new Apple IDs as well? If you say that won't help (because apps will always be associated with the Apple ID they're originally purchased with), then I don't understand how Family Sharing works when you buy apps. In other words, will Family Sharing enable us to share apps that we already downloaded, or just new apps?
Thanks for any help you can provide.
Jason

You should be able to have purchases from more than one Apple ID on one device (up to five I think). When you create the new Apple ID and just leave the apps already on the ipad alone, you shouldn't have any problems.

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http://support.apple.com/en-us/HT201060
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http://support.apple.com/kb/PH2613
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Hey Charliebunny,
Thanks for the question. The following resources may help you grasp a better understanding of Family Sharing:
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http://support.apple.com/kb/HT201060
Sharing purchased content with Family Sharing
http://support.apple.com/kb/HT201085
Thanks,
Matt M.

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