(MONEY Magazine) – About five years ago Deboriah Pogue, now 45, an unmarried business analyst for IBM in White Plains, N.Y., became acutely aware that something was missing in her life--a baby. "I always knew I wanted to be a parent," she says. "I assumed I'd get married and have kids. But it hadn't happened." After thinking seriously about it, Pogue decided to adopt a child. But she had at least one key concern: cost. Of the roughly 30,000 adoptions of healthy infants in the U.S. each year, most involve expenses of $10,000 to $15,000; some, especially those that require lengthy advertising to solicit birth parents, cost twice that much. International adoptions can cost even more (see the box on page 162). Though she earns $59,000 a year and had $6,000 in savings, Pogue worried about how she could swing adoption's expense.

She was surprised to discover, though, how much financial help is available today for families trying to adopt. For instance, Pogue signed up with the African-American program of New York City's Spence-Chapin Services for Families and Children, which bills adoptive parents on a sliding scale based largely on their income. Her agency fee: a manageable $4,000. Furthermore, IBM, like 65% of Fortune 500 companies, had a host of adoption benefits. Among the best were no-cost pre-adoption counseling, two weeks' paid parental leave, and $2,500 to defray expenses through its adoption assistance program. And then there are the new tax breaks. Thanks to a law passed in 1996, up to $5,000 of unreimbursed adoption-related expenses ($6,000 if the child has special physical, emotional, mental or behavioral needs) can be claimed as a tax credit by households with modified adjusted gross income up to $115,000 a year.

There was a happy ending to Pogue's story. In October 1996 she became the adoptive mother of David, then four months old. Now, she says: "He's the joy of my life." Her total out-of pocket adoption cost: $5,000. And she plans to claim all of that as a tax credit when she files her 1997 return next spring.

While the new tax credit and benefits like IBM's ease the financial bite, families hoping to adopt a child still must come up with a lot of cash. Take the typical case of Lorraine and Orlando Hernandez (not their real last name), who live in upstate New York. After four unsuccessful attempts at in-vitro fertilization (total out-of-pocket cost: $22,000), the Hernandezes in 1996 successfully adopted their daughter, Flora-Ann, now 21 months old. But in the process, they drained their remaining savings. Among the expenses: $3,800 for advertising their wish to become parents, $12,000 in agency fees, $7,000 in attorney's fees and $4,000 to support their child's birth mother. Says Lorraine: "I had to put blinders on, tunnel through the process and forget about the money." The Hernandezes now wish they had done a better job of pre-adoption financial planning.

To help you lay out the smartest possible plan for you, this story will explain the various types of adoption as well as how to limit your expenses so that you'll have more money left to buy Teddy bears and diapers and start saving for your child's college education. But remember: While our focus is financial, the story of adoption is of parents and children coming together. "Adoption is a service for children," says David Pilgrim of the Children's Home Society of Minnesota: "You're not buying a child. You're paying for services."

If you're just starting out, be prepared: Adoption today is much different than it was just a decade ago. Do you prefer a closed adoption, in which the birth parents remain anonymous? Or are you more comfortable with the increasingly common open-adoption process, in which you actually meet--and sometimes stay in touch with--the birth parents, usually the birth mother? Would you rather use an adoption agency or a private adoption lawyer, or seek a child through advertisements you place on your own? Says Clyde Tolley, executive director of FACE (Families Adopting Children Everywhere), a public service organization for people interested in adoption: "People have more adoption alternatives than they did 10 years ago. Each comes with its own set of financial and emotional risks and benefits."

Before you familiarize yourself with the different adoption routes you can take, you should have an understanding of the basic costs. Whether you use an agency or a private lawyer, one of the most important documents in your file, and one you are legally required to have, is a so-called home study. The end result of the study, which includes counseling, is a written evaluation of you and your family by a state-licensed social worker. If you are adopting through an agency, the agency worker assigned to your case will generally perform the home study. If you are using a private lawyer, you can still use an agency to do your home study, or you may be able to contract with an independent state-licensed social worker. Either way, this report typically costs $500 to $1,000, depending on where you live.

Frequently, the home-study fee is rolled into a larger agency fee that prospective adoptive parents pay. That was the case with Deboriah Pogue. Her bill of $4,000 from Spence-Chapin, for example, covered the home study; counseling for the birth parents; medical expenses for the birth mother; foster care for the child between birth and placement; and postplacement follow-up and counseling.

If you work with a private attorney, expect to pay $3,000 to $5,000 for his or her services. Those might include legal advice and paperwork, helping you locate birth mothers and then screening them. On the other hand, an attorney's charges usually do not cover the cost of the home study or the birth mother's prenatal and maternity care.

Telephone bills, as well as any lodging, meal and travel costs you might incur if you hook up with birth parents far away, can add as much as $5,000 to $10,000 to your overall adoption budget. And whether or not you work with an attorney to help you locate a birth mother and arrange your adoption, you will almost surely employ a lawyer to help you complete, or "finalize," your child's adoption in court. Fees vary widely by locale but start around $500. Last, check your medical insurance policy for your prospective child's coverage. Federal law requires most employer-sponsored group policies to pay medical expenses, including for pre-existing conditions, from the time you assume financial responsibility for the child. Make sure you're covered, and if you're not, consider purchasing a short-term policy until your regular policy kicks in when the adoption becomes final.

This all might sound overwhelming, but keep in mind that you probably have more sources of cash available than you realize. Those include cash advances from credit cards, second mortgages and home-equity loans, as well as special adoption loans. You can apply for such loans from MBNA America (800-626-2760) and First Union Bank (888-314-KIDS). You might also tap friends and relatives. You can often borrow from a life insurance policy, 401(k) or pension plan too. Bottom line: Leave no stone unturned.

Adopting a baby through a domestic agency

In the past, families using an agency usually put their name on a list and waited for an agency social worker to offer them a hand-picked child. Today, increasingly, the birth parents get more of a say in who their child's adoptive parents will be. In the most common approach, the agency sends biographies of three or more sets of prospective adoptive parents to the birth parents, who pick the one they like best. (Sometimes, as it happens, only the birth mother is involved.) Then a meeting is set up for birth parents and adoptive parents to get together. This is what's known as an open adoption, and today roughly half of the 15,000 or so domestic agency placements of infants each year involve birth parents and adoptive parents who have met each other.

While the new trend toward openness is threatening to some adoptive parents, many of them say that it removes the mystery from the adoption process and allows them to better answer their child's questions about who their birth mother was and why they were adopted. This can help immeasurably in allowing a child to come to terms with being adopted and feeling okay about it.

How open the adoption ultimately becomes depends on the agency and on the wishes of the birth and adoptive parents. In the most extreme cases, adoptive parents are in the delivery room for the birth and visit the birth parents over the years. Typically, after the initial meeting the adoptive parents and birth parents don't see each other again, though they might communicate at regular intervals through the agency--for example, on the child's birthday and at holidays. If you want to adopt the old-fashioned way--that is, having no contact with the birth parents at all--you should look for an agency that still conducts closed adoptions. Some still do. But most now encourage varying degrees of openness, and if you insist on a totally closed process, your wait to become parents may be much longer.

A good one-stop place to start your research is the National Adoption Information Clearinghouse in Washington, D.C. (888-251-0075). It will send out free fact sheets, lists of agencies in up to five states, and reading lists to educate you about the adoption process.

What it costs: Fees vary widely around the country and, naturally, are affected by the types of services you get. At a very few nonprofit agencies, such as Homes for Black Children in Detroit, there are no fees other than the $100 to $150 court filing costs. But far more common are agency charges of $12,000 or so that include the cost of the home study, counseling for birth parents and prospective adoptive parents, medical expenses and foster care if needed. Usually, you will be able to pay agency fees in stages. But be on your toes. Says Ann Sullivan of the Child Welfare League of America: "Your costs prior to placement should be relatively modest. It is always a red flag if an agency requires all fees, or the bulk, prior to placement. No more than half the total fee should be paid before you take the baby home."

How to adopt smart: "Do some comparison shopping before selecting an agency," urges adoption specialist Sullivan. Deboriah Pogue compiled a list of all the private adoption agencies in New York City, the types of children they placed and their fees. "Spence-Chapin came at the top of my list," she says, "because it had a sliding scale." And forget the old notion that you get what you pay for. Just because one agency charges more doesn't mean it provides better service. Your best bet is to call an adoptive parents' support group (see the resource box on page 174) and ask friends who've adopted for recommendations. Also, ask the agencies for a breakdown of their fees, what they cover and what expenses are extra. It might turn out that the agency charges a low fee because most services, such as the birth mother's medical expenses and counseling, are a la carte.

Finally, be sure to check on what adoption benefits your company offers, including counseling, resources, leave for adoptive mothers and fathers (it's often different from that for biological parents) and reimbursement for expenses. The typical benefit tops out at $4,000, says Suzanne Camp of the National Adoption Center in Philadelphia (800-TO-ADOPT; www.adopt.org). But some companies are far more generous. Eli Lilly and MBNA America reimburse costs up to $10,000.

Adopting an infant independently

To mark the new year of 1993, Elise and Robert Sandiford of Los Angeles sent notes to their friends expressing their wish to adopt a newborn. A former neighbor in Chicago gave the letter to her rabbi, who passed it along to a pregnancy counselor in Colorado who showed it to a teen client. The Sandifords met the teenager in Colorado ($995 in travel expenses), brought her back to California to live with them ($540), paid her medical bills ($10,400), counseling fees ($1,000), living expenses ($200) and telephone bills ($130). Three and a half weeks later they were in the delivery room for the birth of their daughter Kira.

While the Sandifords used an attorney and social workers to help with the adoption process, they'd arranged what is known as an independent adoption. That means that rather than use an adoption agency, they hired the adoption attorney (fee: $2,200) to handle the legal paperwork. The total cost of that first adoption was $15,465. They completed a second independent adoption this past February, spending a month in Indiana awaiting the birth of their son Devon. Their out-of-pocket expenses the second time were just under $12,000.

Of the 30,000 infant adoptions that take place in the U.S. each year, roughly half are independent, or private, adoptions. One advantage of this type of adoption is that you have more control over the timing and the search process if you do it yourself. But it can be tricky. Each state has its own rules governing independent adoptions, which are not legal in Colorado, Connecticut, Delaware and Massachusetts.

In an independent adoption, you can ask an attorney to search for a birth mother if allowed by state law, or you can do the search and use the lawyer merely to screen prospective birth mothers you've found and to do the legal paperwork. By networking, mailing resumes to obstetricians and attorneys, running a classified advertisement for weeks in a variety of newspapers, or even creating a home page on the Internet, you can quickly spread the word that you're looking. If you choose this approach, you'll probably want to install a separate telephone line and answering machine to take any responses. Expect to spend six months to more than a year in your search.

Independent adoptions can be risky. By some estimates, roughly half of the arrangements prospective adoptive parents make with birth mothers fall through, usually because the woman changes her mind and decides to parent her child. So it's best to work closely with a lawyer who knows how to screen birth mothers and minimize all sorts of risks, including the possibility that you might be conned by unscrupulous people seeking to separate you from your money. (For a referral, call the American Academy of Adoption Attorneys; 202-832-2222.)

What it costs: The Sandifords' two adoptions, accomplished through the adoption grapevine rather than classified advertising, were relatively inexpensive. If you advertise extensively or hire a lawyer to search for you, or if the birth mother's or child's medical expenses run especially high, your total adoption costs can soar beyond $25,000. In most cases, if the birth mother lacks medical coverage and is ineligible for Medicaid, you will probably pick up prenatal and hospital delivery charges. As a benchmark, most adoption experts say to figure on spending at least $5,000 on these expenses. Some states will permit you also to pay "maternity related" expenses, such as rent, food, utilities, counseling and even lost income for the birth mother for time off from work. Others, like Pennsylvania, forbid the payment of any birth mother expense except medical costs. In addition, budget $3,000 to $5,000 for your attorney and $1,500 for legal representation for the birth parents.

How to adopt smart: Decide which birth parent expenses you are willing to underwrite and know what is legal in your state. And explore whether a doctor or hospital can be paid in installments or will extend you a discount for services. While it's tempting to draw up a contract binding a birth mother to you, it's not legally enforceable; no state allows a birth parent to terminate parental rights before the birth of the child. You can, however, set up escrow accounts through your attorney, pay expenses out over time and get an itemization of all costs. (Your local court is likely to require detailed records of your adoption expenses at the time of finalization.)

It's also very important to find an attorney who's flexible and sensitive to your need to save money. Don't use the attorney for routine hand-holding, since time spent talking on the telephone is typically billed. And steer clear of intermediaries who ask you to pay a "finder's fee," charging you just to look for a child and providing no other services, or who require you to pay to place your name on a waiting list. Perhaps most important: Tamp down those feelings of desperation. Adoptions happen all the time. You shouldn't be hearing that this is a once-in-a-lifetime situation or that you must make a snap decision or forgo the baby. "Be willing to walk away if it's not going right," says Mark McDermott, a Washington, D.C. adoption attorney. "People who are hoping to adopt are so anxious to do so that they are vulnerable to scams or high prices."

Adopting special-needs and older children

Nearly half of the 60,000 U.S. children adopted last year were beyond infancy or deemed "special needs" because of physical, mental, emotional or behavioral disabilities, their age or their minority group. The Institute for Children in Cambridge, Mass. reports that 53,642 foster children were legally free for adoption at the beginning of fiscal 1997. (Other estimates put the number of children in foster care who need adoption as high as 100,000.) States and agencies caring for these "waiting children" consider all of them adoptable and will feature them in picture books you can find at public libraries or subscribe to by mail. Another source: the Faces of Adoption computerized photolisting book (www.adopt.org), which shows hundreds of waiting children throughout the United States. To adopt an older child from the foster-care system, you must go through an agency.

What it costs: Because the aim of special-needs adoption is to find permanent families for waiting children, the costs are minimal and incentives are plentiful. Agencies will lower or waive their usual fees, and the government will reimburse you for your adoption expenses, including travel and legal bills. Plan on initial out-of-pocket expenses of $1,500 to $3,500, but expect to recoup your costs through a federal reimbursement plan or the new adoption tax credit. In fact, says Jeanette Wiedemeier Bower, project manager at the North American Council on Adoptable Children (NACAC), an advocacy and parents' support organization: "The cost of adopting a special-needs child is often completely free."

The federal government mandates that states provide nontaxable adoption subsidies for special-needs children who meet federal and state guidelines. These monthly payments, typically until the child is 18, ensure that a prospective parent is not deterred from adoption because of the expenses of caring for a child with special needs and that the child receives required services. Coverage includes medical assistance, psychological counseling, day care and tutoring, for example. The average monetary subsidy is $250 to $300 monthly, says Joe Kroll of NACAC, but it can reach $1,500 in some rare cases.

How to adopt smart: When Liz Quam, 43, and her husband Chris, 44, adopted six-year-old twin boys through their public agency in Minneapolis four years ago, they were hesitant to accept a subsidy. But they took it anyway, and it's a good thing they did. "Our worker told us medical assistance and a $500 monthly subsidy was available," she recalls. "I said, 'We'll put it in their savings account for college.' But we've needed every penny just to keep the household running." After one of the twins was diagnosed with attention-deficit hyperactivity disorder and post-traumatic stress disorder, Liz quit her $62,000 job, halving the family's income. She admits: "The adoptions have been financially hard on the family. The $500 subsidy hasn't fixed the financial stresses, but the money has helped."

Get as much information as you can about the special-needs child you are considering, including medical records and family history, before the placement. And be sure to inquire about all available subsidies. Get a written subsidy agreement that provides for financial aid, medical coverage, social services and the reimbursement of nonrecurring adoption costs. If you fail to specify all possible expenses and eventualities, don't panic. "Any time you have one benefit," says Weidemeier Bower, "you can go back and negotiate others if the needs change." As with all aspects of adoption, this is a case where it pays to know the rules in advance.

Lois Gilman is a former assistant editor at Time magazine and the author of The Adoption Resource Book (Harper Perennial, $14). Susan Freivalds is the executive director of the National Adoption Foundation.