The Costs of Adopting

Along with all the expenses associated with a new child, adoptive parents are often faced with additional costs, sometimes quite hefty, for the adoption process itself.

The Early Show's "Exploring Adoption" series turned to resident financial guru Ray Martin for information on the money side of the emotional decision to adopt.

The costs can be considerable. There are application fees, court fees, lawyer fees, travel expenses, and more.But there are ways to ease the financial strain.

Martin filled in viewers on the financial aspects of adopting a child and what to expect when starting the adoption process. He also provided tips on how to make adopting a child a little less burdensome on your family's finances.

There are a few different options for parents looking to adopt. Does the method you choose affect the cost of the adoption?

The cost varies widely. It's hard to put a dollar amount on any avenue chosen, but faced with the choices of adopting from a foster home, a private agency, or adopting a child from another country, adopting from a federally funded, state-run foster home tends to be the cheapest option.

If you're looking into using a private agency or doing an inter-country adoption, the costs can vary widely, depending on the individual case. Generally, costs can range anywhere from zero to $40,000, depending on the road you take to adopt a child.

Adoptions can cost tens of thousands of dollars. Where does all this money go?

With private agencies and inter-country adoption agencies, there's often a fee just to fill out an application, and that can end up costing a couple hundred dollars. And since adoption is a legal process, you need to hire an attorney, and will often face court fees. Depending on the situation, adoptive parents will need to pay for counseling for the birthparents, and/or for the birth process itself. You and your spouse may have to get a psychiatric evaluation and medical checkup. All this adds up.

And if you're looking into an inter-country adoption, you need to consider the cost of travel to and from that country and immigration processing fees, in addition to the fees often associated with a private agency adoption. And the adoption process may require more than one visit to the country, so that can really add up. Bottom line: Parents really need to take a close look at expenses, and add up the potential cost before delving too deeply into the process.

How can parents defray these costs of adoption?

There are two main ways to ease the financial burden. The first is a tax credit for adoptive parents. This credit applies to domestic and international adoptions, but the procedure is not the same. A $10,390 tax credit can really help, but if you're new to the process, I'd recommend keeping track of the necessary documents, receipts, etc. and working with a professional to avoid any mistakes. If a credit is allowed, figure it on Form 8839.

The other option may be an adoption benefits plan offered by your employer. Basically, it's a company-sponsored program that financially assists employees with expenses related to the adoption of a child, and/or provides for paid or unpaid leave for the adoptive parent employee. We're talking about a dollar-for-dollar rebate up $2,000 or $3,000, offered by companies such as AT&T, Johnson and Johnson, and Microsoft. The financial assistance may be reimbursement for specific costs or a set amount of money, and you may get a paid or unpaid leave to allow for some time to bond with the child. Often, companies offer adoption-related benefits, but they are not part of a separate adoption benefits plan.

If your company does not offer any sort of package like this, you maymay want to consider changing jobs and working for a company that does. Review your health benefits plan to make sure the new child will be covered under your health insurance plan.

It's also a good idea to consider seeking employment with a company that offers adoption benefits before you adopt a child. If you are entering the job market, and adoption is a possibility, then all other things being equal, gaining employment with a company that offers these benefits is more valuable to you than working at another employer with no such benefits.

How about some financial planning advice for parents who have decided to adopt?

In addition to preparing your finances to accommodate all the typical costs of a new child (diapers, baby food, clothes, etc), adoptive parents need to make some important changes to their benefits and family protection to ensure they are planning properly:

1. Update your health insurance: First off, check out your employer-provided health insurance benefits and reevaluate the best plan to cover your new family situation. You may have previously elected a coverage option that only covers a spouse. That will now need to be updated to include family coverage, or your newly-adopted child may have special medical needs that are not covered under your current health insurance benefit election. So review the options provided by your employer and get the right health insurance in place.

   You should note that, generally, employees are only allowed to make the benefit elections for the following year during the current year's open enrollment period. But when you adopt a child, it's considered a change in family status, and you're then permitted to subsequently change your benefit elections for your health insurance and flexible spending accounts during the year of the adoption. So you get to take another crack at your benefits options to better your new child's coverage.

2. Enroll in flexible spending accounts: Adoptive parents who are eligible to participate in an employer's flexible spending accounts, where they are allowed to set aside pre-tax money that can be used tax-free to pay for out-of-pocket costs of a dependent's heath or daycare expenses, should budget these costs and enroll in these accounts. Paying for out-of-pocket costs can help to defray the costs by as much as 35 percent, due to the tax savings.
3. Review and update wills: If you don't have a will (and over 50 percent of Americans do not), it's more important to have one, now that there is a dependent child to provide for. For instance, in a will, you designate who will be the guardian of the child if both parents pass away. If you already have a will, you need to review it to see that it includes providing for adoptive children as well as any children born by the parents.
4. Update life insurance: Now that there is an addition to the family, it may create a need to get life insurance of increase the amount you already have. Remember that the purpose of life insurance is to provide financially for those who are dependent on you, should you pass away. Also, it's important to get insurance on the life of the care-giving spouse/parent, even if they are not employed outside the home.