Sharing Kids Expenses: “Kids’ Account”
New Math: Kids = Money
Kids are expensive! No news there. In 2014, the USDA released its report titled “Expenditures on Children and Families, also known as the Cost of Raising a Child.” The report shows that a middle-income family with a child born in 2013 can expect to spend about $245,340 ($304,480 adjusted for projected inflation) for food, housing, childcare, education, and other child-rearing expenses up to age 18. (USDA Press Release, August 18, 2014, “Parents Projected to Spend $245,340 to Raise a Child Born in 2013, According to USDA Report”.)
Certainly children of divorced parents won’t cost less. In fact, there are often additional costs so that a child can be taken care of in two homes. If you’re divorced or moving in that direction, you’ll have to think about more clothes, additional toys, furnishing two bedrooms, maybe even two bikes. And you can pretty much count on having to think about how to share health insurance expenses and unreimbursed medical expenses. You might also be thinking about sharing childcare and extracurricular expenses. And how will you pay for the birthday gift that your child will bring to Johnny or Sally’s birthday party?
You might think about a couple of approaches for sharing these kinds of expenses. One approach might be to have each parent save receipts and exchange them monthly or every few months. Then you can reimburse each other based on whatever ratio you’ve agreed to share the expenses. It might sound something like this: “I paid a $25 copay so you owe me $12.50.” A nuisance at the least. Maybe you’ll make a single payment in one direction or the other to get things squared away until the next time. (Whatever you do, DON’T use these expenses to offset court-ordered child support payments. DON’T! EVER!)
We have another approach to consider that a large number of our mediation clients have used successfully. What if you had a “Kid’s Account” that is used to address an agreed list of expenses such as unreimbursed medical expenses or the costs for extracurricular activities that both parents have agreed to? Both parents could contribute into the account using an agreed ratio and then expenses could be paid from the account by check or using a debit card. Both parents should be able to see the account transactions at least monthly or perhaps online. Receipts would be retained and exchanged as necessary. But no more monthly reconciliations. No more “You owe me $12.50” conversations.
Additional advantages: both parents are paying for the costs of childcare which might create tax credits. Both parents are paying for medical expenses creating the possibility that both parents can deduct the expenses. It’s possible that if one parent pays a provider and the other parent reimburses the first parent, only one parent may be able to claim the expense as generating the credit or deduction. (Please consult your tax advisers!)
There are some drawbacks to having a shared account. If there’s distrust between the parents, there may be a concern that one parent will use the Kids’ Account for expenses that have not been approved. If both parents can access the account transactions, there will always be a “day of reckoning,” but for some parents it may be difficult to manage the conversation “after the fact.”
Another problem can be managing the account. What happens if both parents are withdrawing money from the account at the same time without communication? You could end up with bounced transactions. The solution to this might be to have the account in one parent’s name. Or maybe you remember the possible tax issue of not having a joint account (we just talked about two paragraphs ago!) so you have a joint account but you agree that only one parent will make withdrawals except in an emergency. Or maybe no one spends money from the account without some amount of communication between the parents. These are all the same kinds of issues married parents have, but with a divorce, there may need to be more conversation so that unspoken issues don’t become larger coparenting problems.
We’ll talk in a later article about how to think about allocating contributions into a Kids’ Account.