Co-Counsel Bulletins

CHILD SUPPORT: SHOPPING FOR OPTIONS

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[Updated 1998; originally published in The Army Lawyer, July 1992]

Introduction

Major Irene Smith stretched briefly and reached for her second cup of coffee.  As Chief of Legal Assistance at Fort Swampy, North Carolina, she was busy drafting a response to yet another nonsupport complaint addressed to the commanding general.

ˇ         She glanced down the hallway.  Each office door was shut tight.  It had indeed been a busy morning.  Each of her legal assistance attorneys was fully occupied with client interviews and counseling.  Had she been able to eavesdrop, here's what she might have overheard:

ˇ         Captain Brown was meeting with the post adjutant about an impending separation.  The major issues appeared to be college expenses for the colonel's two teenage daughters and an escalator clause for child support until each girl entered college.

ˇ         Lieutenant Black was interviewing a corporal regarding a draft separation agreement that had been prepared by his wife's civilian attorney.  The corporal had some questions on medical care for the children and claiming the dependency exemption for them.

ˇ         Captain Green was assisting a sergeant in responding to his ex-wife's motion for an increase in child support.  The primary issues involved allocation of child support among the three children and when child support would end for each child.

As she turned back to the task in front of her, MAJ Smith began to wonder:  Is my staff "up to speed" on family law counseling?  Did they receive enough training at the JAG School?  In law school?  What will best instruct my officers in the basics of support negotiations and alternatives-a bar association CLE program?  A legal assistance course at the JAG school?  A civilian lawyer from the local bar for some in-house CLE training?  A course of prescribed readings?

Each of these questions is legitimate.  Such concerns must be addressed every working day by the conscientious legal assistance supervisor.  One way to instruct in child support alternatives is to create a template on each aspect of child support, covering issues from the standpoint of both custodial and noncustodial parents and raising "red flags" where problems may arise. This article represents an attempt to outline the child support options that should be considered by military parents upon separation and by legal assistance attorneys in conducting family support counseling.

Child Support:  Monetary AmountChild Support:  Monetary Amount

How much child support will be paid involves at least three parameters:

ˇ         Have the parties agreed on a specific amount?

ˇ         What sum is due under the state child support guidelines?

ˇ         What is the amount is due under service regulations?

Not surprisingly, these three questions almost always yield three different answers![1]

Regardless of the agreement of the parties, an attorney should calculate the alternative child support amounts (under the guidelines and regulations) and review them with the client to provide full disclosure and candid advice about these options.  Being thus advised, the client will always be better informed and more likely to make a reasonable and fair choice in this area.

A couple's agreement as to child support will often be set down in a separation agreement.  The law favors such agreements as an amicable way of settling differences out of court.  However when there is evidence that the provisions for child support are not fair, reasonable, adequate and necessary, the courts will step in to modify or set aside such provisions.[2]

A fair and reasonable amount of child support does not have to follow exactly the state guidelines or service regulations to be deemed adequate by the courts or the parties. It should be remembered that state courts and agencies are now required to treat child support guidelines as rebuttable presumptions regarding the adequacy of child support.  42 U.S.C. § 667(b).  Specific reasons for deviations from the guidelines should be made a matter of record, especially if the agreement is to be incorporated into a court order or divorce decree at a later date.  The amount set by agreement should fairly reflect the parents' ability to pay, their other debts and personal expenses, and the reasonable needs of the child or children.  Examples of reasons for variance from child support guidelines include:

1)       The special needs of the child, including physical and emotional health needs, educational needs, day-care costs, or needs related to the child's age.

2)       Any shared physical custody arrangements or extended or unusual visitation arrangements. 

3)       A party's other support obligations to a current or former household, including the payment of alimony.

4)       A party's extremely low or extremely high income, such that application of the guidelines produces an amount that is clearly too high in relation to the party's own needs or the child's needs.

5)       A party's intentional suppression or reduction of income, hidden income, income that should be imputed to a party, or a party's substantial assets.

6)       Any support that a party is providing or will be providing other than by periodic money payments, such as lump sum payments, possession of a residence, payment of a mortgage, payment of medical expenses, or provision of health insurance coverage.

7)       A party's own special needs, such as unusual medical or other necessary expenses.

8)       Any other factor the court finds to be just and proper.

The parties should also be counselled about compliance with the terms of their child support agreement.  Federal law now requires that all states enact laws that make past-due installments (under a court order) into a judgment by operation of law.  42 U.S.C. §666(a)(9).  This is particularly important when a separation agreement may be incorporated into a decree or order, or when the instrument to be negotiated is a consent order or a confession of judgment.  Court-ordered support obligations are entitled to full faith and credit and generally cannot be modified retroactively.

            Be alert for separation agreements providing for no child support.  One occasionally encounters these proposals, usually in connection with a provision for no visitation for the noncustodial parent.  This is one area in which the courts will not hesitate to set aside the provisions of a separation agreement, even if it has been knowingly and voluntarily executed by both parents with their eyes wide open.  Invariably one of the parties changes his or her mind and requests child support (or visitation rights) from the other.  When faced with such a clause, the courts will usually render an opinion which points to the absence of the child as a signatory to the agreement, states that the child support or visitation is a right of the child (not of the parent), and indicates that the courts always have the inherent power to provide for the welfare and best interest of minor children.[3]  It is a wise idea to discourage use of such worthless language in separation agreements, rather than allowing it to be inserted with the likelihood that one or both of the parents will think it is valid and rely on it in planning their future lives. 

Allocation of Child Support

Whenever possible, make a decision on how child support should be allocated if there is more than one child involved.  The attorney for the noncustodial parent will almost always want to insist on an allocation clause, since it is the key to modification of child support when the circumstances of one child change.  This would occur, for example, when one of the children leaves the custodial parent, either to move in with the other parent or to reside elsewhere.  Another such circumstance is when the termination date (usually age 18) for child support occurs.  In either of these situations, the noncustodial parent needs to know what the new amount of child support will be.  And a separation agreement merely setting out "$500 per month for the minor children" does not really give any guidance to the paying parent.

When the clause does not specify the amount on a per-child basis, many parents will simply divide the total amount by the number of children in order to come up with an approximate figure for each child.  While this may be mathematically logical, it does not conform to the law in most states.  In North Carolina, for example, the child support in the above example would probably remain at $500 until all of the children had attained majority, since the support figure was set out for the minor children [4].  When the amount is set out in a court order, of course, the paying party should file a motion in court asking for a clarification and/or reduction as to the amount of child support to be paid for the remaining child or children[5].  The courts generally do not allow the noncustodial parent to determine unilaterally how much child support is attributable to each child and then reduce his payments by that amount without the benefit of a court order[6].

From the standpoint of the custodial parent, it is obvious that an unallocated amount of child support is best.  This will keep child support at the highest level for the longest time.  If a compromise is necessary, it is usually a good idea to divide the child support amounts unevenly so as to accomplish a de facto increase in child support when one child attains age 18 or is beyond the limit for child support, since that is the single most predictable event that will change the amount of child support.  In the above example, involving $500 per month as the child support amount for two children, this could be divided into $300 for the younger child and $200 for the older child.  Thus when the older child's support is no longer required, the child support would effectively increase for the younger child; instead of receiving $250.00 per month for the younger child, the custodial parent would be receiving $300 per month for that child.

Escalator Clauses

Occasionally a question will arise on recalculation of future child support to take into account the increased future income of one or both of the parties or the effect of inflation on dollars paid for child support.[7]  There are basically four types of escalator clauses that can be used.  It is essential that the client fully understands the impact of such a clause in a decree or separation agreement.

The first type of escalator clause is based on the net or "take-home" pay of the noncustodial parent.  The theory behind this clause is that, as the actual earnings of this parent increase, his or her child support should also go up.  In general this is probably a good idea, but it has its drawbacks-some of which are not all that obvious.

The first problem is that "net pay" is not easily defined and is subject to a good deal of manipulation.   If Sergeant Smith wants to increase his monthly net pay, for example, he need only add a few more withholding allowances on his W-4 form in order to bring home more pay at the end of the month.  None of this, of course, changes the actual tax results that appear on April 15 of next year, but it does highlight the importance of defining net pay and describing how it will be calculated.  The best way to calculate net pay is by examining the federal (and state) tax returns of an individual after the end of the calendar year.  By subtracting all taxes due from adjusted gross income, one can readily determine net pay.  Thus an exchange of tax returns will be necessitated by a "net pay escalator clause."  An exchange of monthly pay stubs will not be enough.

Ordinarily this might prove to be no problem.  Pause and consider, however, the situation that might occur if the payor of child support were to remarry.  Would his new wife want her income disclosed to the ex-wife?  This will occur when joint tax returns are disclosed.  How will this affect his new marriage?  Is there any way of avoiding this exchange of returns?

When confronted with this unpleasant consequence, many potential support payors revert to the "gross escalator clause."  Such a clause triggers child support increases based on gross income increases on the part of the noncustodial parent.  Insofar as wage or salary income is concerned, these are shown on one's W-2 Form, so an exchange of tax returns is not necessary.

Thus the use of a gross escalator clause avoids one major problem, the revelation of a current spouse's income.  A new problem, however, is created in the process-what is gross income?  Is it all wage or salary income, as shown only on W-2 Forms?  What about passive income, such as dividends and interest?  What about earned income that is shown on Form 1099?  What about income from a rental property?  There is no single answer to these inquiries.  A good drafter will realize the difficulties inherent in describing "gross income" and will pay close attention to the wording in a gross escalator clause, ensuring that the client has sufficient input to know what is expected of him or her as to reporting income and calculating child support increases.

The third possibility is the use of an objective and neutral index to determine the cost of inflation.  Since inflation affects both parties equally, at least in theory, the "Consumer Price Index" might be a good way of recalculating child support annually to take into account the price that inflation exacts from everyone.[8]  Should this approach be taken, it is strongly recommended that a specific consumer price index be identified and adopted[9].  There is really no such thing as "the consumer price index"; there are several indices maintained by the U.S. Department of Labor's Bureau of Labor Statistics.  There are, for example, "Wage-earner" and "Urban" lists.  There are different indices  for various regions of the country.  With regional offices across the United States, the Bureau is an excellent resource for the legal assistance attorney faced with a question concerning the indexing of child support based on such a statistical entity.  One can also write for information to the Bureau of Labor Statistics, U.S. Department of Labor, Washington, D.C.  20212.  Be sure that the clause is drafted with sufficient specificity to survive a later court challenge for vagueness.  Only when a specific index is identified with reasonable clarity will the parties be assured of knowing how to recalculate child support in the future.

A fourth and final mechanism for indexing child support is the flat-rate escalator.  This is the simplest of all the standards for escalator clauses.  Basically the parties decide between themselves what is a fair rate of increase in child support per year to be paid, usually with reference to the anticipated rate of inflation or the expected increase in wages on behalf of one or both parents.  This figure-say, 5%--is then applied annually to the previous year's level of child support in order to compute the new amount.  It may not be "perfectly fair," since it follows neither inflation nor the incomes of the parents, but at least it is "perfectly simple" to apply.

Throughout this discussion of escalator clauses, it must be remembered that increases will usually be late in occurring, that is, they will ordinarily occur more than a year after the "triggering event" has taken place.  For example, if Staff Sergeant Smith's pay goes up (due to promotion, longevity, jump status or any other reason) from $1450 per month to $1550 per month, the former Mrs. Smith will not realize the full benefit from a recalculated increase under her gross wage escalator clause until about a year later when W-2 forms are exchanged.

The same is also true with CPI (consumer price index) escalator clauses.  If in August of 1992 the parties contact the regional office of the Bureau of Labor Statistics for the most recent figures for the specific CPI they have adopted in their escalator clause, they will probably receive in September of 1992 a copy of the May 1992 CPI figures.  The figures for May 1992, which are probably the most recent available, only reflect the change in the CPI between June of 1991 and May of 1992.  Thus in this case, the actual adjustment will be more than a year off-base.

A further consideration is whether escalators can go down as well as up.  Most child support recipients want to receive increases only, not decreases.  Most child support recipients are less financially secure than are the payors of child support.  It is very likely that a child support recipient would insist on a basic minimal level of child support as an absolute "floor" in escalator adjustments.  If this is so, it is also reasonable to expect that the other party, the noncustodial parent, should expect and extract as a promise the equivalent "child support ceiling,"  that is, a total monthly or annual amount which represents a "cap" on child support increases.

Finally, the parties must be told how and when to recalculate child support.  The simpler the escalator clause, the easier this will be to accomplish.  One should not be surprised to find many child support payers routinely ignoring escalator clause recomputations for several years in a row.  Only an optimistic or naive attorney would imagine that the noncustodial parent would look forward eagerly to the next redetermination (read "increase") of his child support obligations.  Such clauses are frequently signed in haste.  They are often regretted, ignored or attacked after the realization sets in that "everyone else pays a flat amount of child support, but mine is always going up!"

Medical Care-A Hidden Factor

Clients need to be informed about much more than the "cash amount" of child support.  Most child support cases involve at least two other hidden factors-medical insurance and uncovered health care expenses.

Health insurance covers most, but not all, costs of medical problems.  At the outset it is vital to find out whether the nonmilitary parent has private medical insurance covering the children and what is covered.  A typical policy may have an annual deductible amount of $150, cover 80% of most medical expenses and exclude entirely such items as elective surgery, routine physical examinations and dental work.  Military dependents are entitled to medical treatment at military hospitals and are covered for civilian health care purposes by TRI-CARE, which covers a portion of allowable medical expenses.  There is an annual deductible amount [per person and per family].  This is the military equivalent of medical insurance.

As to coverage for the children, one option for parents who are both working is to have each parent maintain insurance.  This provides "double coverage" (usually through TRI-CARE and a less expensive employer-sponsored plan) and reduces uncovered medical expenses to an insignificant amount.

Another alternative is to have the noncustodial parent maintain medical coverage (either through TRI-CARE or private insurance) while both parents split the uncovered portion equally.  The advantage of this option is that it puts part of the financial burden on the custodial parent-who is the one most likely to "take the child to the emergency room with the sniffles," according to the complaints of some noncustodial parents.

Another factor to consider is the payment of extraordinary unreimbursed amounts on behalf of the child.  In case of a catastrophe, it would appear that the party earning more income should be liable for excess payments.  Such a clause might state that medical insurance would be maintained by the mother, that the uncovered part would be shared equally by the parties up to an annual per-parent ceiling of $150, and that any uncovered expense in excess of this amount would be paid by the father (assuming he is the party earning the greater amount).

A Problem of Definitions

What are these "uncovered health care expenses?"  Depending on the policy language, the finances of the parents and the needs of the children, they might include prescription drugs, psychological counseling, dental checkups, orthodontia, eyeglasses, routine physical examinations and cosmetic surgery. 

Not all of these costs can be readily foreseen.  And it is just as difficult to decide whether to "spell it out" or leave it to the parents (or the judge) to work out who pays for what.  A custodial mother, for example, may be wise not to specify what "uncovered health care costs" means if doing so would jeopardize an otherwise fair and generous order or agreement.  A noncustodial father, on the other hand, might want to exclude specifically the areas of orthodontia and elective health care procedures from "uncovered expense" treatment.  Or he might want to share in the co-payments so long as he is consulted in advance and agrees to the medical or dental procedures.  The attorney must also pay particular attention to the benefits presently provided by the medical insurance, since some of these items may be already covered.

A final word is necessary about when payments are due.  It is important to include a clear statement of how soon reimbursement is required from the noncustodial parent.  There is no "right" answer or choice here-just the importance of choosing a due date instead of leaving this unspecified and therefore unenforceable.  A sample clause might provide that:

1.       Mother shall provide Father with a bill or statement for health care or treatment of a child within seven days of said care or treatment.

2.       Father shall pay any uncovered portion directly to the health care provider (or to Mother if she has already paid this amount) within seven days of his receipt of the bill or statement.

3.       Father shall immediately submit the bill to his insurance carrier for payment.

4.       If Mother has already paid the entire bill, Father shall reimburse her in full within seven days after he receives the bill or statement from her.

5.       If the doctor is not yet paid and is to be reimbursed, Father shall either make the doctor the payee for the insurance check, or else he shall promptly pay the doctor upon receipt of the insurance check.

6.       The bill or statement provided to the Father shall include a description of the child's treatment, prognosis or diagnosis, as well as whether the health care provider has applied directly to the medical insurance carrier for coverage or payment.

Life Insurance

In case one of the parents dies while child support or college expenses are still due, it is a wise idea to use a life insurance clause to provide for the payment of insurance proceeds as a substitute for child support.  Since both of the parents are legally responsible for the support of the children, it makes sense to have this provision apply to both parents, not just the noncustodial parent who is responsible for paying child support.

The first issue with life insurance is to calculate the amount of coverage to be provided.  If the parents do not want to agree on a set figure-albeit an arbitrary one-for the face amount of each policy, then the attorney should start by making an estimate of how much child support would be due and owing from the noncustodial parent if he were to die immediately after the signing of the agreement or decree.  By calculating yearly totals of child support for each child that would be due for the remainder of the term of the child support (and/or college expense) provisions, the attorney can come up with a figure which is the sum of all annual child support installments.  To be more economically accurate, this sum should be reduced to present value (because of the future investment potential of money "in hand" right now), but it should also be adjusted upwards for future inflation.  In a rough way, these adjustments will cancel each other out.  The remaining figure, the sum of all future child support payments, is a fair starting point for the face value of each policy.  It represents the maximum foreseeable exposure of a parent if child support stops because of the death of the other party.

As the years go on, assuming no substantial change in the children's needs and living expenses, this sum (as the face amount of life insurance) could be reduced gradually to account for the decreasing number of years during which child support should be paid.  Life insurance policies with a reducing face value are commercially available, but it is seldom worth the time and effort to shop for and select such an insurance policy when negotiating a life insurance clause.  Instead of trying to find a policy which will constantly pay the lowest amount of substitute child support necessary, it would be a far better idea to provide any "excess" directly to the child upon attainment of majority, termination of college studies or at some other appropriate date. 

Such provisions for life insurance are commonly funded or secured by "owned" policies which belong to the premium payor and build up cash value or equity (whole life or universal life policies), ones which belong to the payor but build up no cash value (term life insurance), and ones which have no equity/cash value and do not belong to the person who pays the premiums (group life policies).  It is important to remember this when drafting a clause that attempts to ensure that the premium payor will not inadvertently or intentionally change the beneficiary to a new spouse, for example, in lieu of the beneficiary stated in the agreement.  How will the other party ever know whether the intended beneficiary remains as such when the policy and all incidents of ownership remain elsewhere-with the payor or his employer?  How can one prevent the payor from signing an agreement containing a life insurance clause and then immediately breaching it by designating a new beneficiary?

The answer is through ownership of the policy.  Except in the case of group life insurance policies (including SGLI), most insurance companies allow a collateral assignment of ownership of the policy to a person other than the premium payor.  It is important to remember that the owner of the policy is the one who designates the current beneficiary and who must consent to any proposed change in beneficiary.  The owner must be informed by the company of any attempts to cancel the policy, and must also be advised as to nonpayment of premiums that would have the effect of canceling coverage.  Finally the owner is the only one who, with life insurance that has cash value, can borrow against the policy.  Since these are the very things which ought to be withdrawn from the premium payor-the power to borrow against the policy, cancel it or change the beneficiary-it makes sense to agree on cross-transfer of ownership of the insurance policies, that is, each parent is the owner of the other's insurance policy or policies for the duration of the terms of child support and/or college expenses.  Ownership of the policies can revert back to the original owner after the support terms have been satisfied.  A cross-transfer of ownership has the effect of protecting each parent, preserving their promises and putting temptation out of the way.

Choosing a Beneficiary

The choice of beneficiary is clearly an important one.  While the simplest choice would be to have the parents name each other as beneficiary, there is a danger in this.  So long as the other parent is named "with no strings attached," he or she will be free to spend the money in any manner possible.  Some spouses have actually gone so far as to suggest that the surviving parent would probably go on a wild vacation and spending spree upon the death of the insured parent.  Be that as it may, few survivors of a divorce want to name the other party as an outright insurance beneficiary.

After casting this alternative aside, some parents will suggest that the child be named as beneficiary.  This has a certain attractiveness, in that the child is the intended recipient of the money from the life insurance policy.  However upon testing this hypothesis, it fails for several reasons.

First of all, most parents intend that the money from an insurance policy be used for the regular, day-to-day expenses of the child as a substitute for the child support would have otherwise been paid.  Many states, however, will not allow the proceeds payable to a minor child to be used in this manner.  The surviving parent will, of course, have to obtain letters of guardianship in order to be able to receive the money from the insurance company.  Such guardianship letters make the surviving spouse accountable to the clerk of court or the judge of probate court for how the money is used.  Quite often the laws of a state will require that the money be held in trust for the child until she or he attains majority.  Occasionally state law will allow the guardian to request an interim allocation of the proceeds for some large emergency expense, such as a surgical procedure, which the guardian cannot afford.  Outside of this limited exception, however, there are usually statutory impediments to the routine distribution and disbursement of the insurance proceeds for ordinary living expenses-health, maintenance, education and support-of the minor child. 

A further complication is the requirement of disbursement of these funds to the child as soon as she or he attains majority.  Few parents would want a child to receive such a large amount of money at age 18 or 21.  Most often such parents want the money held in trust for the child until she or he is of suitable age, discretion and maturity to manage or spend the money wisely.  A common disbursement provision might allow the payment of half the remaining funds to a child at age 25 and the other half at age 30.

All of these considerations point to the creation of a trust for the child, rather than naming the other parent or the child as beneficiary under the life insurance policy.  Such a trust would provide that the trustee (ordinarily the surviving parent) could use the insurance proceeds for the health, education, safety and welfare of the minor child.  A regular monthly allowance, for example, would be permissible to cover the child's share of lodging, heat and electricity, telephone and other utilities, transportation and schooling.  Additional provision could be made for one-time allocations for major expenses-the purchase of a car or the payment of major medical bills.  The language in the trust should be sufficiently broad to allow for attendance at a private school and completion of at least an undergraduate college degree.  Eventual disbursement provisions should also be inserted.  If there are two or more children, the trust should specify whether the proceeds will be held in separate trusts from the outset or will be maintained in a unitary trust with individual portions split off as each child attains the specified age of disbursement.

Allocating the Dependency Exemption and Child Tax Credit

Ever since the Tax Reform Act of 1984, a legally separated or divorced parent with custody of a minor child for more than half of the year is entitled to claim the dependency exemption for the child in the absence of an agreement to the contrary.[10]  The Taxpayer Relief Act of 1997 added a child tax credit to the picture.  When there is a transfer of the dependency exemption and credit, this may be done by separation agreement, by court order or by attaching Treasury Form 8332 (signed by the custodial parent) to one's federal tax return.  Such a transfer agreement must be in writing.

How much money are we talking about?  For the tax year 1996, for example, the dependency exemption was "worth" $2,550 on a person's tax return as a deduction from income, although that is not the actual dollar value of the exemption.  For a person in the 15% federal tax bracket, the exemption would be worth roughly $2,550 times 15%, or about $382.  For one who is in the 28% federal tax bracket, the dependency exemption would be worth about $714.  Both of these figures are approximate federal tax equivalents on a yearly basis; the applicable state tax amount should be added when the custodial parent is subject to state income taxes.  The tax credit is worth $500 per child ($400 for 1998).

When a legal assistance attorney is representing the custodial parent, the best course of action is not to mention the dependency exemption (and credit) at all.  As a general rule, custodial parents do not like to lose money, and giving away the dependency exemption and credit is one way to do just that.

When representing the noncustodial parent, however, the legal assistance attorney should be sensitive to this economic issue and should attempt to obtain the other side's agreement on transfer of the exemption and credit to the noncustodial parent.  In most divorces, the noncustodial parent is the parent earning more income.  Thus he or she is the one who needs these more.  With skillful negotiations it may be possible to get the custodial parent to agree to "give away" the credit and exemption in order preserve an otherwise satisfactory settlement to her or him.

If the custodial parent will not give the credit and exemption to the noncustodial parent, then it is time to discuss "purchasing" it.  The cost of purchase is usually the additional income taxes imposed on the custodial parent as a result of not having a child's dependency exemption.  This can be monetarized fairly easily.  The rough calculations, based on federal tax bracket alone, are outlined above.  Suppose, for example, that the custodial parent will have to pay $600 more in federal taxes if she does not have the credit and exemption for her daughter.  Ignoring state taxes, this means that she should receive $50 per month ($600 ÷ 12 months) more in child support from the noncustodial parent in order to adjust and equalize her economic position for having given up the credit and  exemption for one child.

To be more precise, the attorney should prepare two dummy tax returns for the custodial parent, one without the credit and exemption for the child and one including it.  The difference in taxes will be the annual amount she or he loses by relinquishing the credit and exemption.  An example of a separation agreement clause for this is:

Husband will be granted the option to "buy" the dependency exemption (and the tax credit) for either or both of the children herein each year by paying her the cost of her losing one or both of same.  In order to accomplish this, Wife will prepare by February 15 of each year her federal and state tax returns showing that she is claiming these exemptions and credits.  She shall send them to Husband on that date and he shall, no later than March 15, send back to her duplicate federal and state tax returns which are exactly the same as the ones she has prepared but which do not these exemptions and credits claimed.  The difference in taxes between these returns shall be the cost of "purchasing" these credits and exemptions.

If Husband wishes to purchase the these tax benefits, he will tender to Wife a check for the tax differential on March 15 also.  Upon receipt of this  check, Wife shall immediately execute a Treasury Form 8332 (or its equivalent) and return same to him.  If he elects to claim only one dependency exemption and credit, then one-half of the tax differential would be the amount he tenders to Wife.

This is what is meant by "purchasing the dependency exemption."  The noncustodial parent pays an additional amount of child support to offset the increased tax burden on the custodial parent who has relinquished the credit and exemption.

The dependency exemption and credit do not have to be transferred for all children on a permanent basis.  They could be transferred in alternating years to the noncustodial parent.  And if there is more than one child, the parents could allocate the credit and  exemptions between both parents.  If this is done, it is usually in a client's best interest financially to have the credit and exemption for the younger child since it will be available for a greater number of years.

Another issue that arises in representing custodial parents is whether the transfer should be complete or conditional.  It is usually contemplated that, in transferring the credit and exemption to the noncustodial parent, that parent will remain current and in compliance regarding all aspects of child support payable under the decree or separation agreement.  Few custodial parents want to transfer the dependency exemption and credit, only to have the noncustodial parent breach other terms of the agreement or order.  For that reason, it is a wise idea to make a conditional transfer of the credit exemption.  The transfer may, for example, be conditioned on the other parent's being in full compliance as to any terms of child support (including college expenses, medical insurance and uncovered health care expenses) by December 31 of each year.  This would be a prior condition to the custodial parent's execution of Form 8332.  This gives the custodial parent significant control over the other parent's compliance with child support terms, and it doesn't require the services of an attorney to bring the other parent around; a simple "pay up or lose the credit and exemption" letter should be sufficient.

College Expenses

For many children today, college is not a luxury-it is a necessity.  With more parents able to afford college due to increased military pay, rising standards of living and financial aid programs, it makes sense to consider college expenses as part of a child support settlement strategy. 

A threshold issue to be decided is how long the obligation will last.  A common college-expense clause provides for four years of undergraduate education for a child.  The four-year period can be consecutive or cumulative.  An obligation extending for eight semesters would undoubtedly accomplish the same result.

Occasionally children take longer than four years to complete college.  For reasons due to everything from illness to "taking a year off," five years might be a more realistic target to consider for length of the obligation.  As another alternative, the time could be extended until an age deadline, such as a child's 23rd birthday, so as to make provision for skipping a semester, working for a school term, or other reasons to extend the obligation.  The parties should also decide whether the child's attendance shall be on a full-time basis or whether part-time attendance is permissible.

The next concern is what items shall be covered by a college-expense clause. The usual expenses covered include room, board, books, tuition and fees.  Of course if a child resides at home some adjustment would be required to the provision for room and board.  Consideration must also be given to who pays for the child's expenses during the summertime.  Occasionally, parents also agree on a stipulated amount of spending money per month or per semester, or an amount of travel money if the school is not located in the vicinity of the custodial parent's home.

It is also important to be specific as to what obligations must be met.  Avoid clauses that require a parent "to help with college expenses if he is able to do so,"  or which state that a parent "will assist with college expenses in a fair and reasonable manner."  Such vague promises are unenforceable[11].

Once the parties have decided on the above conditions, there are still two issues left.  The first of these is performance or qualification terms.  Usually the parties will want to specify some required level of the child's performance for the school and credentials for the program in which he or she is enrolled.  A good example of this would be a requirement that the child shall at all times maintain a "C"average in pursuit of a generally recognized degree at a duly accredited institution.  The reason for such a provision is that, for example, few parents want to pay for a child who is constantly flunking courses toward a degree in "Applied Surfing Technology" at an institution named "Joe's Community College and Pool Hall." 

The last issue is, naturally, money-how much money will be spent and by whom?  The parties need to agree whether one parent will assume sole responsibility for higher education or whether the parties will divide the cost of college attendance between them. 

Whenever one party alone stands responsible for payment of college expenses, that party's attorney should always insist on some form of "cap" or maximum amount that is payable.  In lieu of a specific monetary amount, an appropriate clause could state that this parent shall not be required to pay an amount greater than the in-state tuition rate at the state university or public-supported college nearest the residence of the child at time of entrance.  The reason for this limitation is that, even with well-meaning parents who are anxious to send their child to school, no one wants a college-expense obligation which involves unknown and possibly unaffordable college expenses.  Although today's military pay rates are higher than ever, few military parents can afford the tuition of, say, Duke University or Harvard.  It is in everyone's best interest to keep costs controlled and predictable.  Note that such a restrictive clause does not bar the child's attendance at Harvard or Duke.  That is still permissible; the clause only limits the financial exposure of the parent (or parents) who must foot the bill.

Frequently the parents will decide to divide the college costs between themselves.  At this point, the lawyer must figure out what is a fair division.  Although an equal division would sound logical and equitable, this might not be the case if there is a wide disparity of income between the parties.  If the father makes twice as much as the mother, it might be better to have the father paying two-thirds of the college costs and the mother paying one-third.

One word of caution is in order at this point.  There is sometimes a temptation on the part of attorneys or clients to put off the actual allocation of expenses (by means of incomes) until the time of college entrance.  This is not a wise idea.  If for example the college clause states that the parties will pay their share of the college costs in proportion to their respective gross incomes as of the time the child enters college, it may provide a strong incentive for either of the parents to drop out of the work force at that time.  No parent should be able to profit by his or her own wrongdoing.  Since stopping work just before the child's freshman year would have the effect of saddling the other parent with one hundred percent of the child's college expenses, this type of clause should be avoided.  Although the income of the parties at the child's entrance into college may be different from today, today's incomes at least provide a known and predictable way of dividing college expenses on a pro-rata basis.

Reduction of Child Support for Visitation

In general, the exercise of visitation rights does not give rise to a right to reduced payment of child support.[12]  Unless the agreement or decree specifies so, the noncustodial parent is not entitled to any decrease in child support during those times each year when he has extended visitation with a child.[13]  By agreement, however, the parties may choose to make such an arrangement, either as an incentive to visitation by the noncustodial parent or as a tacit recognition that he will have substantially higher expenses during the period of extended visitation, and this will be matched by lower expenses on the part of the noncustodial parent for these times.

It is seldom desirable or acceptable to eliminate child support entirely for the one-month or two-month period during the summer when the father has the child living with him.  During these extended periods, the mother is unable to eliminate the additional embedded costs that are attributable to having a child in her custody, such as an extra bedroom, the additional furniture or clothing that must be purchased by her, the increased utility expense for the extra space involved, and so on.  A reasonable compromise is to reduce child support by, say, one-half for each one-month period during which the noncustodial parent has the child living with him.  Such an approach recognizes the  fixed costs that are associated with custody of a child and yet also pays deference to those individual costs of a noncustodial parent that will increase during the times the child is with him for an extended period.

Termination of Child Support

Specific events should be recognized by the parents as terminating child support.  Among these are the death of a child, the child's emancipation (by marriage, entry into military service or otherwise), attainment of majority, graduation from high school and the child's moving away from the custodial parent.

The child's death or legal emancipation should always be explicitly stated as absolute terminating events.  When neither of these have occurred, the decree or settlement instrument will usually state that child support terminates upon the child's attainment of majority.  This can vary among the states between 18 and 21.

Sometimes the state law will also contain a "savings provision" which specifies that, for example, child support may continue while the child is still in high school if he or she is over 18 but not yet 20 years of age[14].  Some states also provide for the court's discretion in continuing child support beyond 18 and into college.  If the child attains age 18 but is incapable of self-support, consideration should also be given to a clause which provides for a fair allocation for future expenses for the child between the parents, taking into account whether or not the state law requires a parent to provide for an incapacitated child who is over 18[15]

Care should be taken in drafting clauses that eliminate child support if the child moves away from the home of the custodial parent.  Such moves may be temporary or permanent.  While few would dispute the propriety of terminating child support to the custodial parent when the child takes up permanent residence elsewhere, it is sometimes difficult to say when the child has made a "permanent" change of residence.  The drafting attorney may occasionally want to create a bright-line distinction, such as termination of child support after the child has been absent for thirty or more consecutive days from the custodial parent's home.  At other times, it may be advisable to choose a more vague standard, such as termination when the child has chosen to live elsewhere indefinitely.  Since there is no simple answer, it is essential for the legal assistance attorney to recognize the issue, raise questions and discuss problems with the client in order to obtain a mutually agreeable solution that can be drafted into enforceable language.

Conclusion

            When all is said and done, there is a great deal more to child support than meets the eye.  Since legal assistance attorneys seldom have experience in the civil courts litigating contested support issues, it is essential to provide good training for them in seeing, analyzing and resolving child support issues.  A close examination of the child support issues outlined in this article, coupled with such local CLE training as is available (or affordable) will give legal assistance attorneys a key to solving most child support problems.  The checklist which follows gives a visual outline of the most important aspects of child support negotiations and alternatives.

[rev. 6/28/99]

* * *

 

CHECKLIST FOR CHILD SUPPORT OPTIONS

___MONETARY/CASH AMOUNT

Check state child support guidelines

Check service regulations (for military families)

Allocate among children? [Always when representing the noncustodial parent!]

Escalator clause?  With/without a "cap" to limit the amount of support?

                         net pay escalator                       gross pay escalator

                         CPI escalator                             flat-rate escalator

___HEALTH CARE INSURANCE

TRI-CARE (for military families)

Private insurance

___UNCOVERED HEALTH CARE EXPENSES (UHCE)

Portion paid by noncustodial parent-

all               half                   other fraction

excess over stated amount

Define UHCE or leave unspecified?

Payment due when?  To whom?

___LIFE INSURANCE

Amount of coverage

On both parents or just noncustodial one?

Transfer of ownership of policy?

Choice of beneficiary-

other parent child/children                trust

___DEPENDENCY EXEMPTION

Allocate or leave out?

Give away or trade for increase in child support?

Permanent or annual transfer?

Complete transfer, or conditioned on faithful compliance with child support obligations?

___COLLEGE EXPENSES

Length of obligation

Items to be covered-

room and board    books    tuition    fees

Conditioned on-

child's performance in school?

generally recognized degree?

accredited institution?

Portion paid by noncustodial parent-

all               half                   other fraction

specific amount

___REDUCTION OF CHILD SUPPORT FOR VISITATION

___TERMINATION OF CHILD SUPPORT

Include death or emancipation (by marriage, military service, etc.) or child's moving away from custodial parent

Other qualifying events-

age of majority             high school termination        college termination


[1] Family Law Note, "Setting Child Support Obligations," The Army Lawyer, July 1988 at 65.

[2] See, e.g., Fuchs v. Fuchs, 260 N.C. 635, 133 S.E.2d 487 (1963).

[3]  Fuchs v. Fuchs, supra; for cases involving the reversal of an award of no child support to a custodial father, see Payne v. Payne, 91 N.C. App. 71, 370 S.E.2d 428 (1988) and McLemore v. McLemore, 89 N.C. App. 451, 366 S.E.2d 495 (1988).

[4]  There is a presumption against the proportional reduction of child support when one child attains majority.  Gilmore v. Gilmore, 42 N.C. App. 560, 257 S.E.2d 116 (1979).  A motion to modify should ordinarily be denied as to separation agreements and consent orders when it involves a child's attainment of majority and the allocation of previously undivided child support.  Hershey v. Hershey, 57 N.C. App. 692, 292 S.E.2d 141 (1982).

[5]  See, e.g., Berrier v. Berrier, 67 N.C. App. 498, 313 S.E.2d 616 (1984); Tilley v. Tilley, 30 N.C. App. 581, 227 S.E.2d 640 (1976).

[6]  See, e.g., Craig v. Craig, 103 N.C. App. 615, 406 S.E.2d 656 (1991); Brower v. Brower, 75 N.C. App. 425, 331 S.E.2d 170 (1988); Gates v. Gates, 69 N.C. App. 421, 317 S.E.2d 402 (1984).

[7]  The effect of inflation on child support is well recognized.  Courts have even taken judicial recognition of the effect of dollar depreciation on support awards.  Walker v. Walker, 63 N.C. 644, 306 S.E.2d 485 (1983); Broughton v. Broughton, 58 N.C. App. 778, 294 S.E.2d 772 (1982).  The courts of North Carolina, however, have not been very favorable to escalator clauses in court decrees.  An alimony CPI escalator clause was struck down in Barham v. Barham, 487 S.E.2d 774 (N.C.App. 1997), and child support escalator clauses in  anything except an unincorporated separation agreement were held to be void as against public policy in Snipes v. Snipes, 454 S.E.2d 864 (N.C.App. 1995).

[8]  For an overview of cases in this area, see Brown, "Exercising Care When Drafting COLAs," 7 FAIR$HARE No. 1 at 9 (January 1987); Brown, "Rough Justice in Automatic Support Adjustments, "5 FAIR$HARE No. 5 at 5 (May 1985); and Krause, "Automatic Cost of Living Adjustment Clauses," 1 FAIR$HARE No. 4 at 3 (April 1981).

[9]  For practical guidelines and drafting these clauses, see Merrill and Robertson, "The Consumer Price Index and Child Support Proceedings, The LAMPlighter (Am. Bar Assn. Standing Committee on Legal Assistance for Military Personnel), Vol. 2, No. 1 at 5 (Summer 1990); "Sample Clause:  Consumer Price Index Clause for Agreements,"   The Matrimonial Strategist Vol. IV, No. 8 at 5 (Summer, 1986); and Bair, "Arguing Escalator Clauses," The Matrimonial Strategist, Vol. I, No. 2, at 2 (March, 1983).

[10]          I.R.S. Code § 152(e)

[11]  E.g., Rosen v. Rosen, 413 S.E.2d 6 (N.C.App. 1992).

[12]  E.g., Cohen v. Cohen, 100 N.C. App. 334,396 S.E.2d 344 (1990); e.g., Evans v. Craddock, 61 N.C. 438, 300 S.E.2d 908 (1983).

[13]  E.g. Goodson v. Goodson, 32 N.C. App. 76, 231 S.E.2d 78      

[14]  E.g., N.C. Gen. Stat. 50-13.4.

[15]   North Carolina, for example, does not require such support.  Yates v. Dowless, 93 N.C. App. 787, 379 S.E.2d 79 (1989), aff'd per curiam 325 N.C. 703, 386 S.E.2d 200 (199).

 

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