The Complexities of Child Support
Child support is a key consideration when you’re assessing your finances during and after divorce. While there are some basic calculators found online, there are many components to determining child support that make it more complex than what’s suggested by online state calculators.
Do you need a lawyer to help you determine the right amount of child support? In most cases, no. Lawyers have in-depth knowledge of the law and work within the court system in litigated situations, but most divorce cases do not require lawyers. You may instead choose to work with a Certified Divorce Financial Analyst (CDFA)Ò to assist, whether as a mediator or consultant, maintaining control of the process and outcome faster, with lower stress, and at reduced expense.
Your State’s Guidelines
Models and Guidelines To understand how child support is determined, you should first start with your state’s guidelines. The earnings of each parent are the most important component. There are basically three approaches that a state might adhere to: Income Shares Model, Percentage of Income, Model and the Melson Formula, a variation on the Income Shares Model. Specific guidelines and formulas are determined by each state.
Adjustments In addition to the basic formula that looks at the parents’ incomes, there are a number of adjustments that might also be considered, e.g., the percentage of time each parent spends with the children (shared physical custody), cost of parent’s and children’s health insurance, childcare expenses, child support being paid for children of a prior relationship, transportation to each parent’s home, private school tuitions, and extraordinary health care expenses.
Exceptions State guidelines provide for calculations based on incomes up to a certain threshold, e.g. $30,000 per month. When parents’ incomes are higher than the state’s threshold, the court determines the appropriate amount based on the needs/lifestyle of the children. Additionally, states have a self-support reserve (SSR), which is the minimum amount for income a parent may keep after paying their child support, ensuring that child support does not completely impoverish the paying parent.
Paying More or Less than State Requirements You may want to set child support at a higher amount than the guidelines suggest to accommodate your children’s needs and lifestyle. But can you agree to pay less? If the court is not overseeing payments and there is a mutually agreed amount determined in mediation, collaborative divorce or on your own, parents can agree on a figure that is less than the specified amount. However, if the receiving parent becomes dissatisfied with this amount, he or she may petition the court to uphold an amount based on the state’s guidelines. Some states go even further by not allowing parents to waive or bargain away a child’s right to receive support, requiring financial statements from both parents to set a minimum amount of child support.
What Counts as Income?
Income Defined Income isn’t just your wages earned from working. It is broadly interpreted to mean any funds that may is accessible to provide support for a parent’s children. This might include disability payments, interest and dividends, alimony received/paid, trust income, inheritances, and gifts.
Earning Capacity Parents may be held to earning capacity when child support is determined. This is triggered if a parent has chosen to retire early, work part-time, take a less stressful job, or move to another geographic area such that they earn less than they could otherwise based on their education and experience. Even if your spouse was okay with your decision to work part-time when you were married, you may have to pay support based on you could make working full-time in a position for which you are qualified.
Changes in Income Unlike non-modifiable alimony awards, child support is always subject to modification based on changes in income, expenses, and circumstances. In support of this, most settlement agreements or courts will dictate that parents notify one another when there are substantial changes in income and that they exchange yearly income tax returns.
Bonuses When a portion of a parent’s income is based on a variable bonus or commission, child support calculations get a bit complicated. If there is a history of consistent bonus pay, the income used for support calculation may include the base salary plus a conservative estimate of the expected bonus. An additional lump sum payment may be then assessed based on the actual bonus earned.
Financial Windfall As you know, income is not just earned wages. An unexpected inheritance, gift, lottery win, investment gain, or gambling windfall can have a substantial impact on child support and may require a lump sum payment to the receiving parent and/or adjustment of the monthly obligation.
Payments In-Kind Some obligor parents would prefer to directly provide for their children by buying them things they need, e.g., clothing and school supplies, rather than making cash payments to the obligee parent. While this may seem like a reasonable thing to do, payments in-kind and direct payments to the receiving parent are not credited against support due but if the court is involved in administering your child support. In cases for which the court is not overseeing payments, though, parents have the latitude to offer/accept in-kind payments towards the child support obligation so long as it’s mutually agreed.
Providing for Children Over Age Eighteen
State Requirements The general rule is that parental support obligation ends for a child at majority, which for most states is 18 or when the child has completed high school, whichever occurs later. There are exceptions, though, so it’s important to understand your state’s guidelines.
Special Needs Child support is considerably more complex for children who have special needs and are dependent on their parents for support into adulthood. Even before the age of majority, there are extra expenses associated with caring for a special needs child. It will be essential to plan for the transition of your special needs child’s transition into adulthood and beyond. This type of planning requires expert professional guidance.
College and Other Major Expenses While most states terminate child support obligations at the age of majority, parents may still want to address how future college, wedding, and other major expenses will be handled and shared. Such plans can be readily incorporated into your parenting plan and settlement agreement.
When to Involve the Court
Don’t involve the court any more than necessary. Courts are often controlling, rigid, confusing, slow, and you may require involving attorneys at significant expense. Nonetheless, there are times when it really is unavoidable and the court will step in and assist, whether you are accompanied by an attorney or not.
Your co-parent may habitually make late payments or even stop payments altogether. It’s best to try to resolve this on your own but if you’ve exhausted your options without success, you’ll need to petition the court to enforce payment. The court will set a hearing date and may then take control of future payments. This means the paying parent (“obligor”) will send checks directly to the domestic relations section of the family court who will in turn send a check to the receiving parent (“obligee”). If payments have been missed prior, the court will also establish the amount that must be paid (“arrearage”) and over what time. Many states will go even further and regularly garnish the obligor’s wages, having the employer deduct child support from paychecks and send them to the court.
Child support is a major component of one’s post-divorce financial reality. Many, including attorneys, do not consider the nuances of child support calculations and these can have a significant impact. Be sure to work with a qualified divorce financial expert to make sure you’ve got the numbers right.
Take Control of Your Future
When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)
Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.