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Stepfamily Financial Resolutions for the Year of New Beginnings – Part II
In part one, I covered stepfamily financial matters including individual or joint accounts, credit, disinheriting biological children and social security benefits. Now let’s dig into child support and its impact on stepfamily money.
Support Determination
In Blended Families An Anthology, Sonya Visor shared her child-support drama in The Check for $3.96. She and her husband waited in the courtroom as the magistrate left to formulate his decision. Who would be first on the list to eat this week — their one-year-old son or her husband’s eleven-year-old son from a previous relationship? The magistrate returned with the ruling — his oldest son will eat this week. At the final strike of the gavel, the Visors were left with a check for $3.96. How would you respond to being left with mere ashtray change to support your family?
I too experienced financial woes as a new stepmother and tell my story, A Wiser Man, in Blended Families An Anthology. When the support determination process was complete, my husband was left with $400 per month — just enough to cover the car payment he brought into the marriage. As a single mom, I struggled for twelve years to provide for my children. My dreams of financial security dwindled into fleeting glimmers of wishful thinking.
Each state has laws that govern the family courts and child support calculations. In Michigan, support is calculated on the total income of the biological parents and stepparents. Wow! In Ohio, support is calculated based on the total income of the biological parents only. Since my experience is with Ohio, let’s delve into its support calculation formula.
Let’s say, for example, that the father earned $70,000 per year and his ex earned $30,000. Their total combined income is $100,000. The agency uses a factor to determine the child’s standard of living based on the total income. We’ll estimate it at $20,000. At $20,000 annual assistance for the children, the father would be responsible for seventy percent or $14,000 per year because he earned seventy percent of the total income. The remaining $6,000 ($20,000 – $14,000) is the thirty percent for which the ex would be responsible. So if Dad is the non-custodial parent and gets paid every week, the $14,000 is divided by 52 weeks to get the weekly support. The agency would garnish his paycheck by about $269 a week plus a two-percent processing fee. The agency will collect the court-ordered support until the child is emancipated —graduates from high school, drops out of school or reaches eighteen years old. However, if a significant drop in income occurs, you can request a decrease in support.
Management
If you’re blessed to receive child support, how should it be handled? Include this money with the other family earnings. Remember, child support is not just for buying the kids clothes and toys. Child support also includes housing, meals, school, etc. It will be much easier if the child support is combined with the rest of the family finances. Separating this money for a specific child can create tension in the home and marriage. However, circumstances may require that a portion of the support remain separate. If that’s the case, both spouses should clearly understand the amount and reason for the division.
As you and your mate are communicating about finances, be sure to talk through managing requests for money over and above court-ordered child support. Recall that the net increase in income for our newly-formed family was zero, zip, zilch, nada! We had nothing left for “incidentals” like a cell phone. For the first few years, the requests rolled in and every time my husband had to deny his children, a piece of him died. Added to his frustration of being unable to fulfill his children’s wants, the guilt of them being raised in a “broken home” consumed him.
If you become delinquent on child support payments, the overdue, unpaid balance is referred to as arrearage.
Child support is not discharged in bankruptcy and arrearage is not dismissed with emancipation. The money will continue to be deducted until it’s paid in full. My children’s biological father is almost $20,000 in arrears. Although my sons are grown, I remain diligent in my pursuit. At our last court hearing, an attorney informed me that unpaid child support transcends life because we can receive payment posthumously through his estate. Wow!
Excessive delinquency will cause the Child Support Enforcement Agency (CSEA) to pursue the arrearage in various ways including
- List the derogatory debt on the credit report
- Garnish wages
- Garnish lump sum bonuses
- Seize income tax refund
- Post an arrest warrant
- Taxes.
Withholdings Adjustment
As a recipient of support, the increase in income could place you in a higher tax bracket, which in turn, could reduce some of the deductions that you used to claim. At the same time, your tax situation could improve as a result of the exemptions, I mean children, who are now a part of your life. Adjust your withholdings from your employer to have the appropriate amount of taxes withheld. During tax preparation, you have the option of filing joint or separate as a married couple. Compare the results of both filing options every year. Any given year, one or the other can give you more favorable results.
Injured Spouse
If you normally receive a tax refund, this may be withheld if your spouse has accrued debt for child support or bankruptcy. Complete the Injured Spouse Form (#8379) to minimize disruptions to your refund. Otherwise, the IRS will send a letter notifying you that your joint tax refund has been applied to your spouse’s debt. Once the money is applied, it cannot be reversed. Also, if dealing with a previous marriage, check the divorce decree to determine if the custodial and/or non-custodial children can be claimed on your tax forms or the ex’s. Some couples have the option of claiming the children every other year. For questions about deductions, exemptions and other tax concerns, call the IRS at 800.TAX.1040.
Other points to consider in your stepfamily finances:
- Contact the CSEA and request a statement to verify monthly support payments, arrearages, etc. Understand the laws governing your CSEA and support calculations. What happens if the non-custodial parent is in the military or lives out of state? What if the non-custodial parent is self-employed or a full-time clergy? How will new additions to your family, either by birth or adoption, affect child support?
- Pay all support payments through the CSEA. Monies paid directly to the custodial parent are considered gifts and will not reduce the monthly support obligation or arrearage.
- Survey other stepfamilies. Find out what worked for them and what they wished they had done different. How did they address visitation? Vacations? Finances? Holidays? The other parent?
- Obtain a copy of the divorce decree and keep it in safe place. You may need to include a copy with your tax return to document exemptions.
- Alimony. Be sure to understand how much is required and for how long. Was future money included (retirement, bonuses, insurance)?
Although the adjustment may not be easy, if you plan ahead, communicate daily with your mate and develop a consistent prayer life, your family will survive and thrive.
Four Financial Resolutions for the Blended Family, Pt. I
by Valerie L. Coleman
I believe with all my heart that a man that fathers a child is responsible for the emotional and financial need of that child. The Bible states it quite clearly in I Timothy 5:8, but it just wasn’t fair. From debt incurred during the previous marriage, past due child support and the IRS seizure of income tax refunds, our first year as a stepfamily was inundated with fiery financial darts from the enemy. So while you’re making resolutions to lose weight, read your Bible daily or fast weekly, consider these fundamental tips for your stepfamily finances in 2008, the Year of New Beginnings:
- Did you know that you could disinherit your biological children when you enter into a stepfamily? That’s right, if you predecease your spouse, you can disinherit your biological children. Your spouse will receive your assets and then their children or new spouse are next in line to receive the inheritance. In other words, if I die before my husband, my life insurance and other assets transfer to him. Then when he dies, everything passes to his next-of-kin, his three biological children. My two biological sons would not be entitled to anything. So, upon learning this devastating news, I consulted an attorney and had a will drafted. The small investment was well worth the peace of mind.
In his Blended Families An Anthology story, Money, Joshua Johnson, certified financial planner and owner of Grace Financial Services (Grace-Financial.com), explains the impact of mammon on estate planning. If the transference of your assets has not been finalized prior to you reaching the pearly gates, your ex-spouse will be the court-appointed manager of the assets you wanted to leave to your biological minor children. And if that’s not enough to make your toes curl, your ex-spouse will also receive your inheritance, if he or she is unmarried and without children, and your children predecease you. Your ex is considered the next-of-kin for your children. No way! Way!
To protect your new spouse when a prenuptial agreement is not in place, consider re-titling your assets in both your names. Also, rename the beneficiaries on your life insurance policies and retirement accounts. Consult a qualified estate-planning attorney to discuss these issues.
How will your assets transfer upon death? This decision may not be easy, unless you have decided that all the children — biological and step — will be treated equally. Some parents may want to keep certain assets in their family bloodline. The couple must work through these issues; otherwise the state will determine how your hard-earned assets transfer. Save your family the hassle and plan now. Don’t unintentionally disinherit your children because you did not plan correctly. Proverb 13:22 states that a good man leaves an inheritance for his children, so be a good parent and invest in a will.
- Individual or joint accounts. Will the two of you combine your incomes or will you keep them separate? As a rule of thumb, Joshua Johnson advises couples to combine all household income and treat it as “ours.” In many cases, one spouse brings home all, or a greater portion, of the income. Joshua recommends combining it so that all of the household expenses including mortgage, credit card debt, groceries and vacations are paid from the family pot. By using this strategy, you can eliminate many heated discussions. When couples try to keep things separate, at least one person usually is unhappy. If you two are working to become one flesh, then that includes the money. Time out for paying everything Dutch!
- Credit. Your joint credit status will determine the terms you receive for loans, credit cards and employment opportunities. It is not uncommon for one spouse to have a history of paying bills on time and the other spouse to have a negative credit record. When applying for credit, you may receive unfavorable terms, but remember; derogatory credit is a temporary situation. Negative history comes off your report in seven years (ten years for bankruptcy). During this gestation period, establish a budget and spending plan. Pay all of the expenses on time and improve the negative credit rating. Find out if any credit arrangements from a divorce exist. Non-payment of accounts from your ex-spouse can affect you and your new spouse.
Wisdom abounds in reviewing your credit reports so that no surprises spring up in the future. Pull your credit reports from the three main bureaus and review them together — then annually thereafter. Make sure you visit the correct website for this information — AnnualCreditReport.com. Imposter websites market free credit reports, but eventually charge a fee.
Free reports can be requested by calling 877.322.8228 or you can request your report by writing to:
Annual Credit Report
PO Box 105281
Atlanta, GA 30348-5281
- Social Security benefits. A keynote to mention is that you are not eligible for your ex-spouse’s benefits if you remarry before age sixty. You will be eligible under your new spouse’s benefits though. If your own Social Security benefits are higher than your spouse’s, you will receive the higher benefit amount. If you remarry after age sixty, you have the option of choosing the higher benefit of your current or former spouse. This selection applies if you are a disabled widow or a disabled surviving former spouse who marries after age fifty. If your new spouse is receiving Social Security benefits and you have been married for a least one year, or you are taking care of your spouse’s child under the age of sixteen, you can receive benefits based on your spouse’s wage record. For more information, contact the Social Security Administration.
As you can see, I am a firm believer in combining assets and expenses when a couple becomes one flesh. With a few exceptions, experience has proven that this process works better when both spouses are in agreement. Handling debt, credit, college funding and other financial issues tends to gel easier. These matters are best discussed prior to marriage. If you are already married, communicate with each other as soon as possible. Money tends to be one of the primary reasons for separation. Get a hold of it now and it will not be a roadblock for your marriage in the future.
Part II of Stepfamily Financial Resolutions will focus on the compounded affect of child support in this unique family dynamic.
Copyright 2008 Valerie L. Coleman
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Valerie L. Coleman is the author of Blended Families An Anthology — a real-life account of stepfamily dynamics...Because we are not the Brady Bunch! Penofthewriter.com
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