Blended families face complex tax issues
From an April 10, 2017, post on Accounting Today online
The traditional family is no longer so traditional. Increasingly children are living in blended families, bringing complex tax issues to their parents’ accountants.
“According to the IRS, everybody fits in a biological family: two parents who are married, 2.3 biological children, and that’s it. They file jointly, and you sign your name,” said Jane King, who runs the firm Fairfield Financial Advisors with her daughter Caroline Hedges, in Wellesley, Mass. “Now there are so many different models, whether it’s grandparents raising children, or people who are together and have children, but are not married, or people who are divorced, and there’s joint custody, with two nights at one house and three at another. It’s confusing for accountants and for people who are in nontraditional situations or relationships to figure out what to do.”
The share of children in a two-parent household is at the lowest point in more than 50 years, at 69 percent, compared to 73 percent in 2000 and 87 percent in 1960, according to a December 2015 report by the Pew Research Center. Sixty-two percent of children live with two married parents, while 15 percent are living with parents in a remarriage and 7 percent are with parents who are cohabiting. The share of children living with one parent is 26 percent, up from 22 percent in 2000 and 9 percent in 1960.
King and Hedges advise many blended families in their practice. “Caroline and I are products of a blended family, so we walk the walk,” said King. “It’s very complicated and many of our clients are parts of blended families, and perhaps they feel more comfortable talking to us, who are part of that. We know the pitfalls and the emotional baggage that comes with that, and the complexity of raising children who you’re not the mother of—who pays for what, how do they spend vacations, how do they handle college tuition, etc. Very often those things are not as clearly spelled out in a divorce agreement as they should be, so many issues pop up after someone’s been married five years. Now it’s time for college, and who handles what? The estate planning piece is huge.”