The Complexities of Child Support

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Complexities of Child Support | TruNorth Divorce

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.

Conclusion

 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.

Schedule Your Complimentary Divorce Strategy Session Today!

How is Child Support in Pennsylvania Determined?

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Note: This article has been updated with the Pennsylvania child support guidelines that took effect on January 1, 2022.

Of the many financial considerations in divorce that a couple must address is “how much child support?” Child support in Pennsylvania (and 36 other states) is centered on the Income Shares Model, which is based on the concept that children should receive the same proportion of parental income that they would have received if the parents lived together. That amount is found to be related to the level of household income and the number of children for food, housing, transportation, clothing, $250 in annual  medical expenses for each child, and miscellaneous items that are needed and provided for by their parents. This amount is expressed by the child support guidelines.

These guidelines may be adjusted by the court based on additional information regarding special needs and obligations, e.g., private schooling or extraordinary medical expenses. In fact, there are many complexities in child support. Nonetheless, child support begins with monthly net income. The current schedule for monthly child support in Pennsylvania for up to $30,000 combined monthly net income can be found here.

If monthly combined net income is above $30,000 the amount may be increased based on how much it costs to maintain whatever lifestyle the child has become accustomed to without burdening the custodial parent. Generally, when combined monthly parental income exceeds $30,000 (after deductions), the court orders parents to pay the highest basic support obligation for their number of children, plus a percentage of the amount over $30,000.

  • One child: $3,608 plus 4.0 percent of the combined monthly parental income over $30,000
  • Two children: $4,250 plus 4.0 percent
  • Three children: $4,951 plus 4.7 percent
  • Four children: $5,530 plus 5.3 percent
  • Five children: $6,083 plus 5.8 percent
  • Six children: $6,613 plus 6.3 percent

Parents’ Individual Payments. Child support in Pennsylvania is paid to the custodial parent. If shared custody, support is paid by the parent with the higher net income. When the parents share custody such that the support-paying parent has more than 40% of overnights with the children, a reduction is made accordingly.

Earning capacity may be considered if higher than actual income. Each parent’s contribution takes into account a “self-support reserve” that represents the poverty level of one person as well as an assumption that the children will spend up to 40% of their time with the support-paying (aka “obligor”) parent.

Net Income. Net income is based on a six month average of a party’s income and includes income from any source, including employee wages, businesses owned, pensions and other retirement, estates and trust, social security, tax refunds, awards and verdicts, and alimony that is intended to finance the support-receiving parent (aka “obligee”). Gross income is reduced by mandatory payments, e.g., taxes, FICA, and union dues but not discretionary deductions, e.g., retirement contributions. It may be further lessened by alimony paid to a former spouse or child support for other children of the obligor parent.

Basic Child Support Calculation

The basic child support calculation is determined by

  1. The child support guidelines that take into account the parents’ combined net income and the number of children (see the PA Child Support Guidelines)
  2. The parents’ respective percentages of net income
  3. Adjustments for shared custody
  4. Additional expenses, e.g., child care, health insurance, medical over $250 per child
  5. Other adjustments, e.g., alimony, other children, extraordinary medical expenses, a new spouse’s income. A basic calculator can be found here.

Example Calculations

Example 1: Basic Calculation. Consider the hypothetical case of Keith and Audrey. Keith is the primary physical custodian of their child and has a monthly income of $2,500 after deductions. Audrey has a monthly income of $3,500 after deductions.

Keith and Audrey add their monthly net incomes together to get $6,000. The basic child suppport obligation for one child is $1,172.

Keith divides his monthly earnings of $2,500 by $6,000 to get 0.4167, meaning he earns 41.67 percent of the combined income. Audrey divides her earnings of $3,500 by $6,000 to get 0.5833, or 58.33 percent.

Audrey, the parent with partial physical custody, multiplies $1,172 by 0.5833 to find she must pay Keith $684 per month.

Example 2: Shared Custody. Audrey spends three days a week with the kids (40 percent of parenting time), she does not qualify for a reduction. However, If she spends 50% of yearly overnights with the children, she will qualify for a reduction: She takes her portion of the combined monthly income, 58.33 percent (from Step 3) and decreases it by 20 percent to get 38.33 percent. She multiplies the new percentage by the combined basic support obligation from Step 4 to get her reduced amount: $449 (.3833 X $1,172).

Example 3: Low Income. For low income situations, the guidelines ensure that parents have a minimum amount of income on which to live. Consider Paul, who has a monthly net income of $1,500 and must pay support for two children. The support schedule shows the obligation based on his income alone and number of children is $352 due to his low income status.

If the other parent has a monthly net income of $2,500, that will make their their combined monthly parental income $4,000. According to the chart, their combined obligation is $1,340. With 38 percent of the income (see Step 2 for calculation instruction), Paul’s individual obligation would be $509 per the guideline formula.

Paul, though, will pay $352 per month in support, the lesser of the two results.

Example 4: High Income. Fern and Roger have two children and a combined monthly income of $35,000. They find the highest support obligation on the schedule for their number of children is $4,250.

Next, they multiply $5,000, the amount over $30,000, by .4 (4%) to get $200.

They add $200 to $4,250 to determine their adjusted combined support obligation is $4,500.

To calculate the amount he must pay as the partial parent, Roger multiplies $4,500 by his percentage of the monthly income, which is 52 percent (see Step 3). Roger owes Fern $2,250 monthly (4,500 X 0.52) before deviations for shared custody and other expenses.

Do you want to learn more on important financial considerations during divorce? Download our complimentary divorce financial planning guide.

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How is Child Support Determined in Maryland?

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Child support in Maryland (and 36 other states) is centered on the Income Shares Model. This is based on the concept that children should receive the same proportion of parental income that they would have received if the parents lived together. That amount is related to the level of household income and Number of children. Factors include food, housing, transportation, clothing, $250 in annual  medical expenses for each child, and miscellaneous items that are needed and provided for by their parents. This amount is expressed by the child support guidelines.

Income and Calculations of Support

Calculations for child support in Maryland are based on gross income and includes income from any source. These include employee wages, and businesses owned. It also encompasses pensions and other retirement, estates and trust, social security, tax refunds, awards and verdicts, severance pay, and alimony received. In-kind payments made by an employer that reduce personal living expenses are considered as well. Adjusted gross income is calculated by considering alimony that is intended to finance the support-receiving parent (aka “obligee”) and pre-existing child support. From here, adjustments are made for work-related childcare, health insurance, and extraordinary medical expenses (over $250 per child per year), transportation to/from each parent’s home, and private schooling for special education needs. In Maryland, If monthly combined gross income is above $15,000 the amount may be increased at the discretion of the court. 

When earning capacity is higher than actual income, it may be taken into account. Each parent’s contribution allows for a “self-support reserve” that represents the poverty level of one person. Additionally, there is an assumption that the children will spend up to 35% of their time with the support-paying (aka “obligor”) parent.

Parents’ Individual Payments

The custodial parent receives child support in Maryland. If shared custody, the parent with the higher income pays the child support. When the parents share custody, if the support-paying parent has more than 35% of overnights with the children, adjustments are made.

Example Calculations

Example 1: Sole Custody

Consider the hypothetical case of Keith and Audrey. Keith is the primary physical custodian of their children and has a monthly income of $6,000. Audrey has a gross monthly income of $8,000. Alimony will be awarded to Keith at $500 per month. They have three children. Audrey pays $300 per month for health insurance, $200 of which is for the children. Each parent pays $600 per month for work-related child care.

The Math

Keith and Audrey add their monthly incomes together to get $14,000. Keith divides his monthly adjusted earnings of $6,500 by $14,000 to get 0.4643, meaning he earns 46.43 percent of the combined income. Audrey divides her adjusted earnings of $7,500 by $14,000 to get 0.5357, or 53.57 percent. In this case, the child support obligation for combined incomes of $14,500 with three children is $3,215 per month. Adding in the expenses for health insurance that Audrey and Keith each pays and each parent’s child care expenses, the total child support obligation is now $4,615.

Keith’s share of support is 46.4% of $4,615 or $2,141. Audrey’s share is 53.6% of $4,654 or $2474. Taking into account the direct pays for health insurance and child care, Keith’s child support is $1,341 and Audrey’s is $1,874. Therefore, Audrey will pay Keith $1,874 per month for child support in addition to the $500 per month of alimony.

Example 2: Shared Custody

Audrey has the children for three nights per week with the kids. As such, we calculate she has the children for 156 of 365 nights per year.  When parents share custody, the State increases the combined child support obligation by 1.5 times. Therefore we take the child support obligation for combined incomes of $14,000 with three children of $3,154 per month and multiply it by 1.5 to get the new obligation of $4,823. Since Keith has the children 57.3% of the time, his obligation is $2,238 and Audrey’s is 42.7% or $2585. 

The Math

First, we look what each parent needs to pay the other for time with other parent by multiplying the respective support obligations by the other parent’s percentage of time. Keith will pay Audrey 42.7% of his obligation of $2,238 or $1,281, and Audrey will pay Keith 57.3% of her obligation of $2585, or $1,105. The net is that Audrey will pay Keith $176. 

Next we need to look at the direct payment adjustments based on each parent’s respective time with the children. For childcare, Keith will pay 46.4% and Audrey 53.6% of $1200. The difference between the two is that Audrey will pay Keith $43 monthly for childcare. Likewise, Keith must pay Audrey $93 for his portion of the health insurance. The net is that Keith will pay $107 for his portion of these expenses. 

Finally, we subtract $107 from $176. Audrey will pay Keith $26 for child support in addition to $500 per month for alimony. This a significant reduction for the shared custody allowance.

 Basic Calculator?

If this seems complicated, it can be. The calculator provided by Maryland, though, makes it much easier to see. Try it for yourself. 

To understand the many financial issues of divorce, download our free Divorce Financial Planning Guide. 

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484.321.6990

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