Prepare Your Finances Before You Adopt

Physician's Money DigestOctober 2005
Volume 12
Issue 14

Adopting a child is one of the biggest decisionsyou may ever make. It can also be a shockinglyexpensive decision that will have a hugeeffect on your future finances. In some situations,you'll be paying the price of a 4-year public collegedegree just to complete the adoption process.

Let's take a closer look at those figures. The leastexpensive form of adoption comes from your localfoster care system. Your cost could conceivably bezero since states often subsidize these programs toplace these children. Meanwhile, agency and privatedomestic adoptions can range from $5000 to$40,000 or more depending on agency and attorneyfees, travel expenses, birth mother health and livingexpenses, state requirements, and many other factors.International adoptions are typically the mostexpensive due to the cost of travel and the widevariety of fees and requirements imposed by thecountry handling the process.

All parenthood comes at a price. But with the helpof a financial planner you can create not only a strategyto afford the adoption process, but a plan to savefor the child's education and your retirement. Thefollowing are tips on how to start the process:

•Create or review your financial plan. A financialplan starts with the basics—determining howmuch you really have in savings, debt, insurance, andinvestments. Your planner can also help you understandhow much the additional costs of adopting andraising a child will affect all those numbers. Yourfinancial plan should be reviewed at least once a year.

•Know your tax advantages. Families adoptingoverseas can get some tax relief. Parents are entitledto a one-time tax credit of $10,630 in 2005 for adoptionexpenses. Though the credit can't be reduced bythe alternative minimum tax, qualifying expensesinclude paperwork costs, court costs, attorney fees,and all travel expenses including meals and lodging.However, there are income limits. The credit disappearsfor individuals with modified adjusted grossincomes of $159,860 and $199,450 for couples.

•Make sure you have a will. If you die withouta will, you won't have a clear path of guardianshipfor your child, nor will your assets be properlydirected to support that child. Any good adoptionattorney will insist that you file a will as partof the adoption process.

•Check your insurance options. Before youstart the adoption process, check with your employeror your independent insurance provider to makesure you have the best coverage for what you canafford. Also look into medical savings accounts withyour planner if you decide to take a high-deductiblepolicy to keep premiums low.

•Build your reserve fund. Children are expensiveto raise, so it pays to build your savings beforethey arrive so you won't overuse your credit cards.Also, it's possible that a birth mother's health maytake a turn during the pregnancy, so that's an expensethat needs to be anticipated.

Reprinted with permission from the Financial Planning Association (www.fpa,

the membership organization for the financial planning community.

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