Parenting children after a divorce can be complicated, at best. There are many things to consider, such as parenting time schedules, transitions between homes, disciplinary responsibility, extra-curricular activities, emergency preparedness, one or both parents re-coupling, and more.
One of the more challenging aspects of co-parenting can be managing finances as it pertains to child-related expenses. While child support is addressed in all divorce cases involving minor children, there is sometimes confusion and ambiguity as to what child support covers, how to meet the children’s needs and how to maintain their lifestyle despite the divorce. It’s important to iron out the details of who will pay for what during the negotiations as child support may not be enough.
What is child support for?
Child support is money paid by a noncustodial parent to cover a portion of the child’s expenses. Texas child support payments are based on the income of the noncustodial parent and number of children under that parent. Child support can be used to cover a number of expenses, and the custodial parent has broad discretion in determining how to use child support.
Are you concerned about how this is going to work in your family? If so, here are a few ideas to help bridge the gap if one spouse makes a lot more than the other, or if both spouses make money and the children have an expensive lifestyle neither parent wants to see end.
Using a Joint Account
The use of a joint account can be a great solution for financial co-parenting. If one spouse makes a lot more than the other, this enables the non-monied spouse to have extra income for more children’s needs while the monied spouse has the comfort that his/her funds are going toward the children’s activities and needs alone. Or, if both parents make equal amounts it assures the parents that each are contributing equally to the kids if they both fund the joint account. Here’s how it works:
• A joint account is established with both parents’ names on the account.
• The parents agree on what expenses can be submitted to the joint account, how much each parent will contribute to the account (or one parent if there is a large discrepancy in income) and at what frequency, and special spending rules (such as purchases are capped and/or purchases for certain items only are allowed).
• The parents agree on an ending date for the account and then decide what to do with the remaining funds in the account. (Many of our agreements use this through college or at least high school, and state that the child will keep any funds remaining in the account upon graduation.)
• Both parents establish their own login for the account.
• Both parents have checks and a debit card to access the funds in the account and agree who will pay for replacement card fees and additional checks (either the joint account pays, or each parent pays for their own).
• The parents determine whose address will be listed as the account’s primary address.
We recently helped a couple walk through this whom we will call Brad and Joan. They have 3 children. Their oldest child is in competitive dance, the middle child is in various sports and the youngest child is in a year-round swim team and participates in summer swim league. They have a busy schedule, and an expensive one.
Brad earns over $300,000 more than Joan each year. Brad agreed to pay Joan the standard child support in the Texas code for three children with “step downs” as they graduate high school. This gives Joan a baseline of income to help pay for the mortgage, the utilities, food and minor expenses for the children while they were still living at home.
Brad also agreed to fund a joint bank account for the children on a monthly basis. These funds are for specific purposes for each child (and there was an overall cap applied toward each child). The items in their agreement that are to be paid for via the joint account include:
Dance Class/Dance Team/Dance Competition/Dance Costume costs
Travel related to dance – hotel, air fare, meals during travel alone (for whichever parent was traveling with the child)
Private dance lessons which she was doing prior to the divorce
Private sports lessons for their middle child which he was doing prior to the divorce
Cost of the sports leagues/uniforms/equipment
Private swim lessons for the youngest which she was doing prior to the divorce
Swim team costs/swim competition costs/swim equipment/suits
Back to school shopping in August for clothing, school supplies and backpacks for all three with a cap of $2,000 on that cost each year.
This enabled Brad to cover costs for his children so they could maintain their lifestyle while decreasing the communication needed between the two parties. At any time, Brad can view the account, what was spent and how it was spent. It’s a win-win for all.
Establish Written Guidelines for Large Future Purchases
Brad and Joan also agreed to split the cost of vehicles for each child with Brad paying 75% and Joan paying 25% for a vehicle up to a certain dollar amount within 30 days of each child receiving their driver’s license in the future. They also agreed that Brad would be the parent responsible for negotiating for the vehicle and the paperwork. This puts bounds on the agreement to avoid argument but doesn’t tie them down to a specific vehicle today for a future purchase. Additionally, Brad agreed to pay for auto insurance for the children and they agreed that insurance would start within one week of each child receiving their license and agreed to share the information on the insurance cards within 24 hours of receiving it or changing it.
Pay the Vendor Directly
In other cases, we see the monied spouse paying the vendor directly. For example, we have helped many who agreed to keep their children in private school and the higher earning spouse paid the school directly. Often, we see a mandate to keep the child enrolled in the current private school unless they both agreed, in writing, to move the child. If they moved the child to a different school, the monied spouse would continue to pay 100% of the tuition costs. We also, in some cases, include the costs of meals, uniforms and fund-raising mandates from the private schools. In other cases, both spouses worked, and they agreed to pay the private school 50/50 directly with the same stipulations for change in private school institutions.
We’ve also seen where the monied spouse will pay the dance studio, the little league, the gymnastics teacher, the educational tutor, etc. directly. This decreases the necessary communication and mandates that the child continue to receive the activity or tutoring. We usually see caps put on the spending so the monied spouse has security while still mandating a certain number of activities or dollar amounts be used for the child’s needs.
Making It Stick
All of these things are good and wonderful to put in writing, but what if one spouse changes their mind? What if a new partner comes into the picture and wants to change the details? The wording of these agreements in your decree is critical. Make sure you talk to an experienced family law attorney to help you understand how these agreements need to be worded and then enforced if they are broken. We can recommend an attorney in your area to help you with this. This is critical!
It helps greatly to utilize a financial professional as you iron out the budgeting and monetary details, but then have an attorney draft the document into legal wording to assure your agreements are enforceable.
How to keep track of these expenses? What’s the best way to communicate? Next week we’ll write about our favorite divorced family communication tools for sharing calendars, tracking expenses and handling reimbursements.
We want to help you be the best co-parents possible at Divorce Strategies Group! Give us a call at 281-210-0057 to learn more.