Part 1, Module 6: Determining Child Support and Spousal Support Amounts

Module 6 Determining Child Support and Spousal Support Amounts

Support Payments Overview

            After five modules about child support and spousal support, you may be asking yourself: “well, how do we figure out how much support is?” The answers are the focus of this last module. First, let’s review some of the necessary highlights from previous modules to set up our discussion of calculating support obligations.

            All parents owe a legal duty of support to their children. When parents split up, that duty remains until the children are emancipated. All states mandate the payment of child support from a non-custodial parent to a custodial parent. States cooperate in enforcing child support laws both within the state and between the states. All states have offices of child support enforcement. That effort is coordinated nationwide by the federal Office of Child Support Enforcement and similar laws in all states based in several federal laws and by the process of states adopting uniform codes.

            Different states have adopted different ways of determining child support amounts. The three primary methods used by states are the Income Shares model, the Percentage of Income model, and the “Melson Formula.” There are links to forms for calculating child support amounts for all three in the notes below.

            Unlike child support, states vary widely in awarding spousal support. There are no set multi-state forms for determining amounts of spousal support. Some states have general statutory guidelines, and some states determine these amounts strictly on a case-by-case basis. A notable exception, California has a lengthy statute for determining spousal support[1], but as you can see, it is not very specific and much of the support order is ultimately left to the determination of the judge in the case. Because of that, this module will spend most of its time on figuring out how to determine child support amounts.

Note that the calculations used to determine support obligations apply to all phases of all support cases, including before the divorce, post-judgment modification hearings and cases in which the parents were never married. The calculations are all the same for all cases. These amounts are statutory and cannot be negotiated away without a judge’s consent in most cases. But they also allow for a certain amount of flexibility in determining what figures go into the calculations.

When does Child Support Start?

            In most states, the legal obligation to pay child support begins when one of the parties or a state agency formally opens a court case by filing an action that requests child support. This can include a divorce, dissolution, formal separation agreement, paternity action, petition for custody and support or action by Children’s Services or another state agency. In most cases, a support order is dated retroactively to the date that case was filed.[2] Most of the time, a support order will not be enforced for amounts owed before that date.

How Child Support Amounts are Determined

            Child support amounts are determined using a complex formula that involves the income and expenses of both parties run through calculations that are designed to determine the amount he children need to live as well as they can under the circumstances. The formula considers the amount of time that the children spend with each parent. This all goes under the category “best interests of the child.”[3]

            There are no national standards for child support calculations. Each state is free to develop child support standards in line with its own economies and standards of living. Child support amounts reflect the realities of life in any given state—wealthy states have higher standards of living, and therefore higher basic child support, than poorer states. Each state is also free to determine what constitutes reasonable expenses and what constitutes income.

In-Kind and “Under the Table” Payments

Child support payments must be in cash and must be be administered by the state child support enforcement agency, or they simply do not count. Direct payments from the obligor to the obligee are considered gifts and do not count against child support obligations or arrearages. Normally, the obligee may file an acknowledgment of the payments with the court if she wants to forgive an arrearage or the obligee can simply decline to pursue an arrearage. However, if the obligee receives public assistance, the obligation and potential arrearages may go to the state. In such case, any direct payments from the obligor to the obligee will not count against the ordered support amounts.

In-kind payments are non-cash transfers of value, such as the purchase of food, clothing, tickets to Disney World, etc., that directly benefit the child. These payments, not being cash, do not count against the support obligation. If the obligee wants to forgive the obligation based on the value of in-kind contributions, that will have to go before a judge as well.

Spousal support payments are usually in cash as well, but there are some cases where a transfer of property was part of a spousal support settlement or order, in which case it will, of course, count towards the satisfaction of that order.

The base amounts of each state’s child support rules are determined by economists who study the needs of children in that state and then come up with figures that provide basic needs for children. These needs include basic necessities like food, clothing and shelter; educational needs; medical, dental and vision care; transportation; child care; entertainment needs; and extracurricular activities.

Let’s expand on a couple of these categories:

Educational needs

All states require that children be supported through high school or until emancipated. This support includes the basic expenses of primary education like books, clothes, cost of participation in extracurricular activities, transportation, and so forth. Cases may vary by state or court when other educational issues arise like private school or college. Some courts may require payment of a percentage of tuition and costs in those cases.

Medical Needs

All child support orders contain provisions for the medical care of the children. Many states require a separate health insurance affidavit.[4] The typical order will require one of the parents to carry medical insurance. Out-of-pocket and other unpaid medical expenses are usually split between the parents. In some cases, one of the parents will be required to obtain medical insurance if neither party carries it through work. This is all also balanced against the parties’ procurement of health insurance through the Affordable Care Act if that is the situation. Extraordinary medical expenses can be split between the parties based upon ability to pay. Employers may be subject to a Qualified Medical Child Support Order by a court ordering group medical coverage on children of an employee who is divorced, separated, or never married.[5]

Income and Expense Affidavits

All state courts require that parties to a divorce or any post-judgment motion to modify support supply the court with income and expense affidavits. These will often appear in “short forms” for people of moderate to low income[6] and in longer forms for people with more complex financial lives. These are sometimes called “income and expense sheets” but they are official documents, and the penalties for supplying false information to the court can be severe. These penalties can include attorney’s fees and other expenses and lying on the forms can be classified as perjury.

Determining Income

The point of these affidavits and the other inquiries into the finances of the parties is to determine each party’s “net disposable income.” Income can be in the form of cash or in the form of benefits, perks, and other non-cash items. This determination can vary a bit by state, but for the most part, states will look at income from every source in calculating support amounts. This is called “gross income.”[7] After that, the formulas will deduct various expenses to arrive at the parties’ “net income.” Income can include present income and past and future income, though the latter two may be treated differently than present income by a state or a court.

We will start with gross cash income. A typical list of what constitutes income under state and federal laws looks like this:

• Salaries and wages. These include overtime, second and third jobs, under-the-table job wages, bonuses, commissions, profit sharing, deferred compensation, severance pay, and so forth. Most of the time, this is determined from tax returns. If there has been or will be a change in income, then that change must be considered. If there are no tax returns, the court can use any statement of income such as pay stubs. Overtime is not generally included in income unless it is regularly scheduled. Seasonal income will be annualized.

• Self-employment income. This includes rental income; partnership income; sole proprietorship and joint venture business income; income from agency; income via contractual relationship; income as an independent contractor, and so on. The gross income of a business is the amount earned minus regular business expenses, and minus one-half of self-employment tax.

• Social Security benefits, but not SSI payments in some jurisdictions.
• Securities investment and interest income, including dividends and profits from securities sales.
• Annuity income.
• Pension income.
• Disability payments, including Social Security Disability.
• Capital gains income. States are split on how to treat capital gains from corporate stock sales income. One state[8] has even held that unrealized capital gains (meaning that the stock has gone up but has not yet been sold) is income.
• Trust income. Though, income of the trust that is not accessible to the trust beneficiary is generally not considered income.
• Estate income.
• Military benefits, including veterans' benefits; Military personnel fringe benefits; and National Guard and reserve drill pay;
• Cash benefits like workers' compensation benefits, unemployment insurance benefits, strike pay, disability insurance benefits, etc.
• Gifts and prizes, including lottery winnings and gambling winnings.
• Education grants that are given as income beyond tuition, like living expense money, etc.
• Alimony received from a person other than this spouse.
• Income of a new spouse of either party, to the extent that income reduces expenses of the parent.

Non-cash gross income includes employment perks that decrease the amount that the party needs to spend on living expenses. These include car or transportation allowances, housing allowances, the value of free food in a company cafeteria, reimbursed expenses or other form of non-monetary compensation. Those amounts would not include expenses for company travel, client expenses, etc., because they do not reduce the person’s living expenses.

States are split over whether several forms of income should be counted as gross income for purposes of calculating support amounts. These include:

n  Individual Retirement Account interest income. If this income is not paid to the account holder but is instead reinvested into the IRA, states have treated that money differently. Several states have held that it is to be included in gross income[9], while others have not.[10]

n  Retained earnings of a corporation, partnership or sole proprietorship. Retained earnings are the money that a corporation has earned and keeps after expenses-- equivalent to shareholder earnings. Whether or not this money counts as income will have a lot to do with how much ownership equity the party has in that business, but states are all over the place on this issue.

Imputing Income

There may be cases where one of the parties earns less than what person is “qualified” to earn. For instance, a person with a cosmetology license may not be working at all, or a person with a law degree may be working as a waiter, or a person who owns a cash business may be understating the income of the business. Courts make determinations of an amount that the party should be making if the court has reason to believe that that party is deliberately earning less money to diminish income for purposes of determining support amounts. This is, of course, a case-by-case analysis.[11]

For people who are on public assistance or who otherwise have minimal income, courts and guidelines impute a full-time job at minimum wage or use other means to create a minimum income for the obligor. For people who cannot work for medical or other legitimate reasons, courts may use a zero-income amount. This is also true if a parent is a full-time student or if the child has needs that the parent can fulfill only by staying home.

Expenses

The next step in determining support amounts is figuring out the qualifying expenses of each party. Those expenses are then deducted from the party’s gross income to determine a net income for each. Expenses that do not qualify are not deducted from gross income. State laws, guidelines and courts determine qualifying expenses based on whether the expenditure goes directly to supporting the payee and child.

Acceptable expenses

Although states may vary in exactly what expenses may be subtracted from gross income to determine net income, most jurisdictions[12] agree that the following are deductible expenses:

n  Spousal support is deducted from the payor’s income before child support is determined.

n  Child support for other children of another relationship, especially if they are living in the party’s home.

n  For child support, the general living expenses that also benefit the child are deducted. These include utilities, rent or mortgage, transportation for the child, educational expenses for the child, food, clothing, and other basic expenses.

n  Medical expenses are deducted. Extraordinary medical expenses may be split by the parties.

n  Court-ordered educational expenses.

n  Work-and education-related daycare.

n  Taxes and Social Security payments.

n  Union dues.

n  Children’s extracurricular activity expenses.

n  Travel expenses to see a child for visitation.

n  Employee contributions to IRAs and other private retirement accounts.

Unacceptable Expenses

Many normal day-to-day expenses and other expenses not directly tied to the children’s welfare are not allowable on income and expense sheets. These can include:

n  Car payments

n  Loan payments

n  Vacations

n  Private club memberships

n  Anything that does not directly benefit the child.

Cost of living and other automatic adjustments

Court decisions and separation agreements sometimes include cost of living adjustments or other payment adjustments keyed to definitive workplace changes like retirement that will automatically kick in when certain conditions are met. This saves the parties from having to go back to court when these circumstances change.

And after all of this, we are now able to figure out how much child support will be paid. Each state has a formula for doing that. That formula takes each parent’s income and expenses, along with the percentage of time that the children will spend with each parent and plugs all of that into a monetary formula that creates a single monthly support figure.

In practical terms, these formulas are now determined by computer programs. There are numerous software companies which have developed these programs. Many domestic relation attorney websites have simulated support programs so that a viewer can get a sense of how much support will be.

Guideline Examples

Space and time preclude running through these very complex calculations, but the formulas are provided below to let you see the underlying dynamics of each system.

Income Shares Model: Below is a link to a highly detailed explanation and worksheet from the state of Georgia which covers these calculations in detail, including the statutory support amounts.[13] It is worth the time to go through this document carefully.

Percentage of Income Model: Wisconsin is a “Percentage of Income” state. Its guidelines call for the following:

• 17% of income for 1 child
• 25% of income for 2 children
• 29% of income for 3 children
• 31% of income for 4 children
• 34% of income for 5 or more children

A Wisconsin court can deviate from these guidelines in several cases, including percentage of time spent with each parent, children of other relationships, and other special circumstances.

Finally, we’re also providing Delaware’s “Melson” guidelines, which are complex but worth the time to look at.[14]

Conclusion

Spousal support and child support are complex areas of domestic relations law. These six modules have provided an overview of the policies that go into laws and court decisions in this area of law. Through the efforts of many experts over many years, much of child support law has been created to be consistent and straightforward throughout the country. In the end, though, laws involving children always come down to one factor: what is in the best interests of the child? That’s what all of this is all about.