The Effect of Financial Decisions on Stepfamilies
The Effect of Financial Decisions on Stepfamilies
The Effect of Financial Decisions on Stepfamilies
Written for Flying Solo
by Marjorie Engel
If your previous marriage ended in divorce, the majority of your divorce decisions were based on dollars. But it's not likely that you made very many of those decisions with an eye toward the potential effects on a future family. At the time, your frequent sayings were probably more along the lines of "Once is enough!" or "Never again!"
Even if you were planning ahead, it's impossible to cross "formers" out of your life. Whether through alimony, support, or everyday existence, former spouses and their relatives constantly influence and intrude on stepfamily life -- usually financially! I've heard them referred to as "bad pennies" because the obligations from an earlier marriage always have a way of turning up.
Once settled, some of the divorce decisions about child support and spousal support tend to become routine. Many unwritten agreements fall into a routine as well. For instance, I see men continuing to perform some of the maintenance on the home that their ex is living in -- just to help out, or because of their on-going financial investment.
Sometimes the divorce is only on paper. Individuals drag along all kinds of financial baggage into the new marriage. Continued wrangling over alimony or child support are prime examples. And, if you're lucky enough to avoid problems early on, just wait until you hear sweet whisperings about "college tuition."
Honor your business contract and court order. Return to court for a modification if it is necessary. Beyond these two things, there are two major approaches to dealing with financial responsibilities of a first family. You can:
(1) Use money as a weapon for power and control.
(2) Evaluate what you can afford and what you want to do for the children.
Item (2) deserves serious thought. Repeatedly, children tell me that they felt they:
(1) Had no say in the divorce.
(2) Had no say in the terms of their financial care.
(3) Felt no priority was given to their needs or wishes.
It would be a mistake to assume that only women would benefit from closer attention to financial planning for the children. It is clearly in the interest of both women and men to have a clear understanding of obligations in the event of remarriage for either parent.
Issues that couples may consider "unusual" when preparing separation agreements are actually "typical" in reality. They come up over and over again in conversations with stepfamilies. For instance, there are always "unforseen" issues such as:
(2) special needs for tutoring
or the reverse
(3) funding encouragement of gifted skills or natural abilities
Every divorced person feels that they agreed to at least some of the divorce financial arrangements just for the sake of finally reaching a settlement. Some of these concessions are bound to strain new obligations.
Almost all new spouses are at least somewhat aware of the prior financial obligations. But, the dollars and cents significance can never be completely clear until you start living with it.
Some things couples who marry take for granted may be gone:
(1) Various benefits from retirement plans
(2) The opportunity to be the life insurance beneficiary of a cost effective policy
(3) Specific gifts of household items upon death of spouse
(4) Regular child support in the full amount ordered. Unfortunately, too many fathers feel, "My former wife has remarried. Now, let someone else foot the bills."
In my experience, men are more likely to try to avoid conflict by avoiding the issues. Sort of a "put up and shut up" philosophy. Women are more likely to want to get conflicts resolved, even if the end result is not exactly to their liking. In dealing with issues that have to do with a former spouse, we, husbands and wives alike, can be a force for destruction or a bonding agent. By doing nothing, we are allowing problems to exist, continue, and to escalate.
FORMER LINKS THAT SEEM TO BE FAVORITE FAMILY PROBLEMS
To tell or not to tell children about the terms of the divorce financial settlement?
Obviously, age, and the relationship have a lot to do with your decision. So does your assessment about how much your children are little motor-mouths.
In cases where the children are old enough to understand, it usually makes sense to explain, where they're involved, the terms of your financial agreement with their other parent. When they understand the reasons why certain decisions were made, they have an amazing ability to understand games that adults may be playing.
I have yet to meet the parent who is happy about paying for extensive phone bills -- especially when the kids are spending our money pouring out their unhappiness about us or anyone in our new household.
And how many arguments do you and your spouse get into about which long distance calls were made by who's kid? One thing is for sure. Attempts to limit calls will be perceived as attempts to limit contact with their other parent -- and reported as such!
On the other hand, you can't afford to give them free rein. Families have met with at least partial success by:
(1) Finding the best long distance carrier for the type of calls frequently made
(2) Restricting calls to your carrier's low-rate periods
(3) Negotiating time limits. If the conversation needs to be longer, the other parent calls back.
(4) Find out what's involved in providing a separate phone for the children.
You can pay a specified amount each month. Beyond that, they use their own earned money.
Parents with physical custody for the greatest portion of the year have the automatic right to claim the children as dependents -- even if they do not provide the majority of support.
Parents can agree to a different arrangement if the custodial parent waives the right to the exemption. To transfer the exemption to the noncustodial parent, the custodial parent must sign IRS Form 8332 that acknowledges this transfer. A signed IRS Form 8332 is stapled to the noncustodial parent's tax return for that year. A new form must be attached to each applicable IRS filing year. You do not have to go back to court to renegotiate this.
This issue comes up again in the section on "Government Rules and Regulations."
Medical deductions for children
A child is automatically treated as a dependent of both parents for purposes of their individual contributions toward medical expenses and reimbursements.
Child care expenses
The child care credit (for children under the age of 13) can only be used by the parent eligible for the IRS dependency exemption.
Writing that check can be the pits. I've heard about several different ways to approach this aggravation.
(1) Make an arrangement with your bank to do an automatic transfer of funds on specified days or dates.
(2) If your new spouse doesn't get uptight about the job, ask him or her to write the check. (I've learned that a lot of new spouses do this but not without a lot of moaning and "you owe me"'s)
(3) Set up the obligation so that, psychologically, it looks like any of your other routine bills.
(4) Instead of focusing on the money that your "rotten, conniving" former spouse is getting, keep repeating to yourself, "What a responsible and caring person I am."
Then treat yourself to a hot fudge sundae...
I'd really like to see a savvy entrepreneur begin a business called "National Family Bank and Trust Company." It would serve as an administrative clearing house for receipt and disbursement of all court ordered support payments. Insurance premium type assessments would go into a pool to assure that children received their support on time. The company would be empowered with collection "teeth" that would go into action promptly. Annual accounting would be made. Spinoffs could be money management classes and training for preparing to go back to court for necessary modifications. And even more important, without a new court order, the original obligation to the children continues in force and is paid!
NO END IN SIGHT
A stepfamily will always contend with the fact that child support set at a point in time will probably not continue to be appropriate for a child's or paying parent's needs as the years go by.
The original payment schedule may become too high for a paying parent who has:
(1) lost a job
(2) become ill
(3) had some kind of family emergency
Financial agreements that worked for years may become inappropriate for a child who:
(1) develops a chronic illness
(2) requires extensive therapy
(3) starts college or a special training school
Financial liabilities to children of a former marriage can never be permanently fixed. Courts retain the right to reevaluate child support orders. One of your green sheets is a graphic representation of procedures the court currently uses for recovering delinquent child support payments after they have been ordered by the court.
The court's primary focus is upon the concept of wage withholding. They can attach your paycheck or just about any other regular source of income stream -- ranging from social security checks to IRS refunds. More about that effect on joint tax returns later.
Since a family's total financial picture is taken into consideration, the stepparent's financial situation is vulnerable. If payments fall into arrears, the court can order that jointly held assets will be used to satisfy child support obligations. For instance, money saved for a vacation may need to be spent to pay for orthodontia. Or, less directly, your spouse is ordered to pay for unplanned bills and you have to pick up more of the current family expenses.
Families routinely reallocate available funds. This is nothing new. The difference is that it's easier to swallow the anger or disappointment when it's for "our" kids.
You don't have ultimate control. Establishing financial fairness is unbelievably hard. Is the struggle worth the effort? I think it's worth the effort to attempt to be fair. Where fairness isn't possible, work to find practical solutions and then let go. Pull up your anchor.
IS IT POSSIBLE TO PROTECT YOUR SEPARATE ASSETS?
When you remarry, you may not realize it but you also say "I will" to potential financial liability for your new spouse's old debts, tax liabilities, business problems, and lawsuits. When you're attached to another person financially, you're at risk.
When a new spouse has financial responsibilities, that means there will be less to go into the new marriage. And, basically, obligations to an ex spouse and old debts are the same -- they're both creditors.
The segment on "Second Helpings" will give you ideas on ways to manage this problem.
It's a good idea to check your credit record on a regular basis, say, once a year. It is your responsibility to see that the records are accurate. It is not the credit bureau's responsibility. Errors are inevitable. Make the time to clear them up.
I think this is important because I have heard horror stories about an ex spouse's poor credit rating erroneously lousing up otherwise good credit reports. However, it is not a mistake for obligations you continue to have with a former spouse to be on your current report.
Write to one of the large credit bureaus, TRW, CBI, TransUnion, Chilton, Credit Bureau, Inc., CSC (formerly Associated Credit Services). Include your full name and address, telephone number, social security number, birth date, former address (if you have moved within the last five years), and a photocopy of two pieces of identification such as a driver's license and a current charge card billing statement. (See Flying Solo Credit Files which show you how to send off for these credit files).
If you live in a small town, your credit history is probably kept by a local bureau as well. You'll find credit bureau listings in the yellow pages. One item commonly viewed as a mistake, probably isn't. The most frequent example of continued credit attachment to a former spouse is a home mortgage. Transfer of title as part of a divorce settlement does not cancel responsibility for the mortgage debt. Only two things cancel your responsibility for that mortgage:
(1) payment in full
(2) a new mortgage without your signature as a borrower
Prior divorce decisions will affect your financial planning as a stepfamily. So will the government's rules and regulations affect a remarrige.
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