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The Complexities of Child Support

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!

11 Costly Financial Mistakes in Divorce Settlements

 

Divorce is expensive even without mistakes. Read on to learn of the top eleven most common financial mistakes made in divorce.     

1. Mis-Specifying Marital vs. Separate Assets

What’s considered marital property and subject to division? Most will say that any comingling of assets (e.g., depositing the funds in a joint account or using marital funds to pay the mortgage) constitutes an asset as marital. And in some states and counties, even if a portion of an asset that was separate on the date of marriage will, over the years, transition to marital. This can impact considerations of real estate, retirement, inheritances, and more.

2. Dividing Each Asset 50/50

Too often, lawyers, hearing officers, and judges take the easy way out by forcing division of each asset equally. Why? It’s easy and not easily challenged. This approach, though, fails to consider the needs and wants of each spouse, as well as the tax consequences of and administrative effort in dividing each asset.

3. Not Considering an Alimony Buyout

No one likes alimony. Payors hate writing the check and the recipient hates depending on it. Plus, if the payor dies or is disabled, the payments stop (an example of why insurance is important post-divorce). Instead, if there are sufficient assets to cover it, calculate the present value of the stream of anticipated payments at an appropriate discount rate and build it into the division of assets.

4. Errors in Valuing Executive Compensation

If there’s one financial topic that befuddles many, it’s how to treat deferred compensation, including stock options, both qualified and not qualified, as well as restricted stock and restricted stock units. Are they marital or separate? Are they based on past or future performance? Can they be transferred to a spouse/former spouse? What is the correct valuation method: intrinsic value, Black-Scholes, or the binomial method? How are taxes accounted for?

5. Not Considering the Possibility of Hidden Assets

Given the opportunity and motive, many a spouse will start stashing away funds in anticipation of a divorce, whether for financial security, sense of ownership, or vindication. Tax returns, W-2’s, credit card statements, and bank account statements are all sources to identify diverted funds. Even when not suspected by a client spouse, a quick review of these documents may reveal otherwise unidentified assets.

6. Not Looking at Creative Settlement Options to Meet Each Spouse’s Unique Needs

What if a spouse wants to keep the house for and can’t get approval for a mortgage buyout? It’s easy to just say “sell” and move on, but there are ways to facilitate the desire of a spouse who wants to remain in the home for a period without undue legal or financial burden to the co-owner spouse. As another example, maybe retirement funds are of utmost concern and alimony/cash flow not so much? A skilled divorce financial expert will come up with alternative settlement options to address the unique needs of each spouse.

7. Mistakes in Retirement/Pension Valuation and Division Orders

Retirement plans, and especially pensions, are widely misunderstood in divorce. The one who’s name is on the retirement plan thinks they are the rightful owners. Some incorrectly think the “current value” on a pension statement is the value of the pension. Pensions of all kinds, and especially military and federal pensions, require an expert for valuation and drafting of appropriate orders for submission to the custodian.

8. Failing to Consider Tax Consequences

All assets are not alike when it comes to splitting them in divorce. $250,000 in a 401k is not the same as $250,000 of equity in a house. The former is taxed at an ordinary income tax rate upon withdrawal while the latter may be largely excluded from any taxation and otherwise taxed at the capital gains rate.

9. Allowing One Spouse to Keep the House When it’s Not Financially Feasible or Beneficial

The marital home is an asset laden with emotion and sentimentality. It’s common to want to keep the house for emotional stability without consideration of the impact on future financial health. Houses don’t necessarily appreciate significantly over time, maintenance expenses are often overlooked or discounted, and a house is not a liquid asset. An objective evaluation is critical before deciding to keep or sell the marital home.

10. Not Properly Accounting for a Closely Held Business

If a spouse owns a business, is it a source of income, an asset to be valued and divided, or both? If a source of income, do we just look at the tax returns for the business? If to be valued, do you pay a business valuation expert thousands of dollars to get an accurate figure? Get the advice of a divorce financial expert is necessary if one of the spouses owns a business.

11. Not Accurately Budgeting for Your Post-Divorce Life

Do you have a good hold on where your money goes? Have you really assessed how much you will need post-divorce? Your choice in divorce settlement options needs to be balanced between short-term cash flow needs and long-term net worth.

Work with a qualified divorce financial professional, i.e., a Certified Divorce Financial Analyst® (CDFA®) to help you avoid costly mistakes in divorce. You only get one chance to get it 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 to Win in Divorce

In a recent post, I addressed the notion of “winning” at divorce. There are many lawyers who claim they can do just that, and they will be happy to take your hard-earned money while they fight your war for you. The reality is, in the vast majority of cases, you’ll wind up no better off than if you’d negotiated to begin with while funding your lawyer’s kids’ college education instead of your own. 

Winning might instead be viewed as getting through this divorce transition with integrity, keeping more of your own money, and maintaining your and your children’s emotional health throughout. Ideally, you’ll do this without ever stepping foot into a courthouse or even speaking to an attorney. 

So, how do you get better outcomes, at a lower cost and without judges, courts, or even lawyers? If you have minor children and marital assets, don’t attempt a do-it-yourself divorce unless you want to risk costly mistakes that cannot later be reversed. If you want an easy, affordable, and legal solution, seek a qualified divorce mediator. 

You will want to find a mediator who has the knowledge, skills, and experience to guide you and your spouse to a financially optimized settlement agreement and, if applicable, with a parenting plan that preserves the integrity of your family. A mediator with the divorce financial expertise of a Certified Divorce Financial Analyst (CDFA®) is ideal. 

How, though, to address the legal piece of your divorce? You will find that legal agreements and divorce papers are straightforward in a mediated case. These can be easily facilitated by your mediator so that you never even have to work directly with an attorney to process your divorce. (It’s never a bad idea, though, to have an attorney review your agreements before they are finalized, and this can be done at a minimal cost.)

Rationally approaching your divorce, along with a dose of grace, can result in a lower-cost and faster process while addressing your financial needs and preserving your family’s emotional well-being. Now, wouldn’t you agree this would be a “win” at divorce?

What it Means to “Win” at Divorce

Are you thinking about a divorce and wondering how you can achieve a lopsided division of assets and alimony, so you don’t have to work? And maybe sole custody of the children, too? If so, you wouldn’t be alone.

You’ll easily find a divorce attorney who will fight your war with you for years. And you’ll only end up where you would have if you’d negotiated to begin with. And guess what—you’ve funded your lawyer’s kids’ college accounts rather than your own. Is this a “win” at divorce?

Perhaps you should instead consider getting through this overwhelmingly difficult transition with dignity while keeping a lot more of your own money and maintaining your and your children’s emotional health throughout. In most instances, you can do that without ever stepping foot into a courthouse or even speaking to an attorney. 

The fact is that ninety percent of divorces don’t belong in the court system. When you involve the court, you give up total control around life-altering decisions regarding your assets, your income, and the custody of your children. Whether within or outside of court, if you involve an attorney for both you and your spouse—the traditional model—it will result in legal expenses that you can’t possibly fathom when you’re 1) just getting started and 2) convinced the “system” will see your side of what’s just. Attorney-driven divorce processes will not provide you with practical guidance and needed emotional support nor correctly value all your assets and considers both the short and long-term impact on each spouse’s financial health.

I set out years ago to find a better way to divorce, creating and refining a process to deliver just that. At TruNorth Divorce, we provide a legally-sound, one-stop solution for divorcing couples who want a financially optimized settlement that helps both spouses achieve their long-term goals. When children are involved, we also provide effective and durable parenting plans. Yes, there is indeed a better way that will be less expensive, faster, less stressful, minimize the negative impact on your children, and launch you towards a new and promising future.

Want to know more? Read How to Win in Divorce.

Making Time for You: How to Make Time for Yourself

Divorce is a truly hard and difficult process that impacts many facets of life including our social circles, finances, and even our sense of identity. To adapt to this transition, it’s essential to schedule time for self-care. I say schedule because that’s just how intentional doing self-care during your divorce is. In order to have the stamina to find a new living situation, research affordable childcare, or land a new job, you’ve got to carve out time that’s just for you. 

How to Make Time for Yourself

Exercise

Move your body! Movement provides an outlet for stress and anxiety and gives a safe place for these (valid) emotions to go. In addition, regular exercise promotes healthy sleep and improves your mood. Divorce is a long-distance sport, so keep your strength by pumping your heart rate up for at least 15 minutes, three times per week. Most importantly, let go of any predetermined notion of how your body should be looking right now, and exercise for the lasting health benefits and confidence it builds.

Meditation

While it may feel daunting at first, introducing a meditation practice into your routine is a core self-care tool. Meditation can take many forms, including walking meditations, repeating a mantra, or guided breathing exercises, so don’t feel like you have to look or dress a certain way to practice. Ultimately, meditation encourages our awareness of the present moment, helping us to safely feel our bodies and provide refuge in a sea of emotions without judgement.

Journaling

Therapeutic activities like journaling is another great grounding technique to keep you rooted in the present. Gurus and scientists alike agree that writing a list of what we are grateful for — especially first thing in the morning — can instill a sense of optimism and sustain us through the hurdles of the day. Keeping a journal during your divorce can also provide catharsis in the future, a testimony to what you accomplished; your hard won freedom.

Recreational Reading

Give your brain a break from the divorce lingo and the parade of emails. Having a solid fiction book to dive into is a readily accessible form of relaxation, even for the busiest of minds. A reading ritual is just as much about the material as it is the setting, so use this time as an intentional space set aside where you can find some quiet, free of distractions.

Relaxing Bath or Shower

When depression looms, self-grooming can go out the window. Scheduling time for a luxurious bubble bath might seem ridiculous, but not if you’re serious about staying sane. Combine this time with your recreational reading, or don’t! It’s your self-care ritual, relaxation is the only requirement. Incorporating essential oil blends like spearmint, eucalyptus, and lavender are a perfect addition to soothe your sinuses. Candles make things feel official and can transform just about any space into a sanctuary.

A Balanced Diet

Stress can deeply affect your appetite, especially when facing separation. It’s important to create systems in your home that will help you eat regular meals to maintain your blood sugar level and a stable mood. A diet full of leafy greens and energy-packed fats like avocado and ghee is the most nutritious, but can be challenging to sustain. This means maintaining a healthy diet might require setting aside an afternoon for meal prep or making batches of comfort foods like lasagna that can be easily heated up when you don’t feel like cooking. Whatever your optimal diet is, try to focus on the idea of nourishment while eating instead of distracting yourself with devices and screens.

A Divorce-Free Zone

Spending social time without dominating the discussion with your divorce is not only essential for your well-being, but your friends’ as well. Divorce doesn’t need to define you, and playing the broken record of how crappy your ex is, well, crappy to listen to. Protect your social circle and make a point to be present with your friends. Using this transition as an opportunity to check out some local activities you’d normally slough off can be a great way to stay socially active; I’m talking Zumba, farmer’s markets, that Persian restaurant you haven’t tried, all of it. You’re discovering the new you after all! 


Hopefully this list not only offers advice after a breakup but gives you some blueprints on how to design your own divorce self-care routine. These rituals will serve you best if you approach them with a sense of curiosity; these practices should not be punishments. If you’d like to check out other guides on how to survive your divorce, download my free ebook here.