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Blended Families Should Plan Early for
Their Kids' College Financial Aid
Finances for blended families — one of the fastest-growing
demographics in the United States — can be complicated. The
needs of stepchildren may fall into direct conflict with one's
own, and aside from the many financial entanglements that result
from previous marriages or partnerships, college planning is a
particular area where couples should seek help.
Why? Because more than 60 percent of all college students now
apply for some form of financial aid, and those numbers will go
higher as college costs rise. Add that to the sometimes
conflicted financial goals within families with children from
previous marriages and relationships, and a couple's financial
picture may become a source of considerable strain based on
negotiations with former spouses over the welfare of children
from previous relationships.
That's why both tax experts and financial planners should be
consulted before couples remarry — to address the host of
financial issues blended families face. In particular,
individuals with children from a previous marriage should think
through how college will be funded for their own children as
well as any children born after the remarriage.
Here are several key issues that soon-to-be remarried
individuals should consider with regard to planning for college:
Divorce agreements should spell out college support.
By the time individuals are planning to remarry, a divorce may
be long past. But in cases where a divorce may be pending before
remarriage, couples may have the opportunity to secure adequate
college support if state laws allow that as part of a
settlement. Even if the children are very young, support
agreements should always look ahead to the years when the child
heads to college, not only to make sure that the education is
properly funded, but to spell out those financial
responsibilities for each divorcing spouse.
Prenuptial agreements should too. Even if a remarrying
couple has very small children, it makes particular sense to
look to the future when the children of this blended family are
heading for school. In many situations, it's common for
remarrying spouses to shoulder the full burden of the blended
family's college expense. But a prenuptial agreement — a
financial agreement made by two individuals planning to marry —
can do two things. It can look into the past and document
existing agreements with ex-spouses to pay for college expenses
and other financial support and it can look into the future to
do contingency planning for the kids in case this marriage ends
up in divorce as well.
Get advice about the FAFSA. On January 1 each year,
students become eligible to file their Free Application for
Federal Student Aid (FAFSA) online for the coming school year.
This process can get very confusing in blended families because
parent-child relationships determine the level of financial
responsibility and the potential for aid. In some cases, it
might be wiser for a couple not to marry while children are
still receiving financial aid in college, so it is critical for
divorced spouses to get advice on this issue. Colleges will
determine financial aid packages on the custodial and financial
profile of parents based on any of the following parental
scenarios:
- The parent who
had provided the majority financial support to the child
during the past 12 months.
- The parent who
supplied more than half of the child's support and pledges
to continue to do so.
- The parent who
has legal custody of the child.
- The parent who
claimed the child as a dependent on their taxes.
- The parent who
provided the most financial support to the child during the
most recent calendar year.
- The parent with
the greater documented income.
College financial aid is tough enough for traditional
families to navigate. A financial planner with specific
expertise in navigating financial aid issues as well as your
overall financial picture can help you make the best choices in
preparing your application for college aid.
Remember that if the parent who provided financial support
was single, divorced or widowed but has since remarried, the
student will have to submit the stepparent's financial
information. While this information will be evaluated, it
doesn't legally obligate the stepparent to provide financial
assistance.
September 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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