The Tough Math of Co-Parenting: What to Know About Taxes, Medical Expenses, and More
Even amid the most amicable of separations, navigating the experience of co-parenting can be fraught with complexities, particularly when it comes to the division of expenses. Who pays for health care? Which parent gets the annual tax deductions associated with having children? And how should clothing and extracurricular activity costs be divvied up?
Of course, there's no one right answer to any of these questions—because every family's situation is unique. But it can't hurt to have some helpful guidance from experts. With that in mind, here are tips for negotiating the tough math of co-parenting.
When divorces and separations involve children, there are a variety of important tax considerations to review. Perhaps most notably, you will need to decide which parent gets to claim the dependents on annual tax returns and file as 'head of household' (as opposed to filing single with no dependents, for instance). There are many ways to approach this decision.
"When there's just one child, the separated or divorced couple may want to consider alternating the years they can claim the child in order to share the tax benefits," Kaleb Doyle, CPA, CFP, and advisor on the Compardo, Wienstroer, Conrad & Janes (CWCJ) team at Moneta, tells Parents. "When multiple children are involved, each spouse can claim a child in order to be considered the head of household, so that both parents can reap the tax benefits."
However, in instances when one parent is not generating income, it may not make sense to claim the child on tax returns as there are no financial benefits to doing so. You can also determine who files head of household on annual tax returns based on the amount of time children spend with each parent.
For instance, in cases where the child (or children) live with one parent for 183 or more nights and the other for 182 or fewer nights, the parent who has the child the most nights is the custodial parent, Beth Logan, author of Divorce and Taxes After Tax Reform, tells Parents.
"Only the custodial parent can claim head of household and even then, there are a few other rules including the custodial parent must provide more than 50 percent of the living expenses," says Logan, adding that tax code on this matter takes precedence over any divorce decree from a court.
The custodial parent who is claiming head of household is also able to claim dependent childcare credits on annual tax filings, notes Logan. The non-custodial parent, however, is not able to benefit from the childcare credit, even if he or she is also paying for childcare costs.
The expenses associated with education can be a particularly contentious issue to navigate among co-parenting couples, says Doyle. This is especially true if the divorce or separation of the family happens while the child or children are still young, because there's no reliable way to forecast the financial situation of each parent years into the future, or the cost of higher education.
"In our experience, it's best to have the expectations of each parent spelled out in the divorce decree," says Doyle. "For example, how much is each parent responsible for when it comes to paying college costs? Perhaps it is decided from the start that the parents will split the cost of in-state public college tuition." Additionally, if a child decides to pursue an out-of-state or private college, it should be made clear to the child that tuition will only be covered by parents up to a certain cost.
"Figure out the plan for this ahead of time, because you will not want to be going through these conversations when scholarships, tuition, and financial aid are also being discussed," says Doyle.
Yet another way to handle education costs among co-parenting families is by establishing savings accounts dedicated to these expenses, such as a 529 plan.
"With these accounts, students can use the money that's been saved overtime to pay for college expenses," continues Doyle. "The challenge we sometimes see with these accounts is that over time one parent may want to fund more or invest more aggressively than the other."
To address such differing approaches, parents may want to each establish their own 529 plans, rather than sharing a single, joint account.
Health insurance coverage and medical expenses are another big-ticket item that should be clearly fleshed out among parents who are sharing child rearing responsibilities.
"Medical expenses are usually shared between parents based on their respective incomes. A parent who made $ 100,000 a year and a parent who made $50,000 a year would split children's medical expenses 66 percent-33 percent," Chicago-based divorce attorney Russell Knight, tells Parents.
There is no law that stipulates expenses must be divided this proportionally by income, but it's standard practice because it's inherently fair, says Knight. This is particularly true in the case of legal divorces during which judges weigh in on how expenses will be handled.
It's also worth noting that often in cases where one parent is covering the cost of providing health insurance, there's usually an adjustment made to any child support to reflect the premium being paid by the insuring parent.
When it comes to medical expenses not covered by health insurance (such as prescriptions, over-the-counter medications, and similar expenses), the general rule of thumb is that these costs are split evenly between the two parents.
"You can, however, create a different arrangement with your ex, and the court will probably approve it," Stephen Cawelti, a California-based divorce and child custody attorney, tells Parents. "If you do that, it is vital that you get your arrangement in writing and filed with the court."
While parents are often able to find common ground (or some semblance of agreement) on critical issues such as health insurance costs and uninsured medical expenses, when it comes to discretionary expenses such as extracurricular activities, cooperation can be more difficult, California-based divorce attorney Emily Rubenstein tells Parents.
"If one parent will not agree regarding discretionary expenses, there is generally not much you can do to force payment. So, my number-one tip is to have a clear agreement, drafted by an attorney, so each parent's rights, obligations, and expectations are clear," suggests Rubenstein. "An agreement can include provisions about payment, but also procedures for making these decisions in the first place. For example, what happens if the parties cannot agree about an activity?"
The idea is that both parents should contribute, but one parent should not be able to unilaterally financially obligate the other, continues Rubenstein.
"What if one parent chooses an expensive private tennis instructor that the other parent cannot afford to pay for half of? Or simply thinks that the price is unjustifiable?" Rubenstein explains. "What if one parent wants the child to participate in an activity that the other parent does not agree with? This is why mutual consent is usually required for splitting extracurricular costs."
Clothing costs and other discretionary expenses
As parents everywhere know well, extracurricular activities are hardly the only discretionary expenses you'll run into raising a child. Clothing is another major cost. And as a child grows older, there are still more miscellaneous expenses that arise each day, week, and year.
"Expenses change a lot as children get older," says North Carolina-based family law attorney Jaime Davis, with Gailor Hunt Davis Taylor & Gibbs. "I've even seen co-parents account for who will pay for a future wedding while the child is still quite young."
When it comes to clothing, there tends to be one parent who pays for the bulk of this expense, says Davis. Co-parents may also disagree over the price of clothing being purchased or the quality of clothing.
"The issues of clothing and personal items for the children can be addressed in the separation agreement or court order. If it is not, one option is that you can buy whatever clothes you want for the children, but with the understanding that they may not be returned to you [when they are worn to the other parent's home]," continues Davis.
Another option co-parents might consider involves establishing an account into which both adults deposit an agreed-upon amount of money, which can then be used by either parent to purchase clothing or other necessities for the children.
"This arrangement requires a certain amount of trust between the co-parents, but works well for some families," says Davis.
Get it in writing
Parenting is hard, even for couples who are still in a romantic relationship. Parental disagreements are commonplace. This is especially true because the child is usually the most important person in the world for each parent, says Rubenstein.
When you add co-parenting into the mix, among two adults who are no longer in a committed partnership, the emotions associated with decision making and personality clashes become even more complex.
"The parents have chosen to end their romantic relationship because it didn't work, but still must find a way to work together to parent their children. It's tough, but it's doable and there are many tools that can help," says Rubenstein.
In addition to getting all financial agreements and responsibilities in writing, Rubenstein suggests establishing a jointly accessible spreadsheet where expenses can be tracked.
"Keep a shared running spreadsheet with reference to receipts and invoices," says Rubenstein. "The clearer and more organized you are, the less opportunity for co-parenting conflict. And you don't want to scramble through old receipts and invoices after the fact; it's a mess and you're likely to miss things."
This type of spreadsheet allows both parents to clearly see what's being spent, and what is owed. Additionally, should you need such information in court, it will be readily available.
"There are a lot of apps tailored toward helping co-parents in these situations that provide support in tracking expenses, such as who is responsible for paying what," says Doyle. "The apps can also help align schedules, so it's known who is responsible for picking up their child from school or activities that day. These apps can be much more organized than a text thread."