This is the eighth post in my “Divorce & Your Money” series.
Child support is an important issue for any divorcing couple with children. Parents need to know what to expect so they may plan for the future.
Here are the basic questions I hear from couples (in my state, New York) surrounding this issue:
What is child support?
Child support is money one parent pays the other to meet the needs of a child. Needs may include food, shelter, clothing, health insurance, medical costs, education and child care. The amount of child support is based on the income of both parents. The goal is to give children the same standard of living they would have if their parents were together.
How long does child support last?
In most circumstances, child support is paid until your child is age 21.
Child support may be suspended or terminated if a child older than 16 becomes emancipated, marries or enters the military. Duty to pay child support does not stop automatically. Requests to stop making payments need to be submitted and approved by the same court that made the child support order.
What if parents have joint custody?
Joint custody is common if when both parents live locally. The effect of joint custody on child support depends on the nature of the joint custody arrangement.
With joint legal custody, both parents share major decisions regarding the child. Joint legal custody may have no effect on child support. One parent still has primary custody of the child and handles payment of most of the child’s day-to-day expenses. The custodial parent’s expenses for the child have not been reduced by the joint custody arrangement.
With joint physical custody, the child spends substantial time with each parent. If the parents have approximately equal incomes, it is possible neither parent will have to pay support to the other. The father and mother will pay the child’s day-to-day expenses when the child is in the respective homes. The parents, however, will need to coordinate payments on major expenses such as camp, school, clothing, and insurance.
If there is a significant difference in the parents’ incomes, the parent with higher income probably will make payments to the other parent or pay more of the child’s expenses, but the amount paid might be less than the guideline amount because of the joint physical custody arrangement.
How much will it be?
The basic formula for child support is based on both parents’ income per year and the number of children. If the parents’ combined income is $136,000 or less (as of January 1, 2012 – the amount changes every two years), the court follows a simple formula:
(Combined Parental Income) x (Child Support Percentage) = Basic Support Obligation
Child support percentages are:
- 17% of the combined parental income for one child,
- 25% of the combined parental income for two children,
- 29% of the combined parental income for three children,
- 31% of the combined parental income for four children, and
- no less than 35% of the combined parental income for five or more children.
Income for purposes of this calculation is gross income on the most recent federal income tax return, minus Medicare, FICA and NYC tax deductions.
Basic Support Example
One parent is the primary caregiver and makes $25,000. The other parent makes $100,000. They have one child. Total income is $125,000, which is multiplied the “child support percentage” of 17%.
$125,000 x .17 = $21,250 is the basic child support obligation.
The higher-earning parent would be responsible for 80% of that figure ($17,000) because their income ($100,000) makes up 80% of the combined parental income ($125,000). The other parent would be responsible to pay 20% ($4,250) of the child’s expenses.
In theory, both parents could pay their share into a trust or separate account for the child. However, the court may presume (or the couple may agree) that the custodial parent is spending their share directly on the child’s expenses.
Additional Costs, Payments, or “Add Ons”
In addition to the basic child support obligation, additional payments to cover child care costs (if the custodial parent is working or in school), health care expenses, school, camp, or other major expenses may be required. These payments are prorated at the same percentage as the support obligation (using our example, 80% and 20%).
The basic award may be increased to include a pro-rated share of child care expenses, if the custodial parent is working or in school. In addition, the court may increase the award to include a pro-rated share of educational expenses for the child.
If the combined income is more than $136,000, the court could use the same formula for all income or choose to set a “ceiling” for income to be applied to the formula. That ceiling could be much greater than $136,000 for very high-income couples.
Alternatively, the court could use the formula for only the first $136,000 of combined income, and then decide how much (if any) additional to award by considering these factors:
- The financial resources of the custodial and non-custodial parent, and those of the child.
- The physical and emotional health of the child and his/her special needs and aptitudes.
- The standard of living the child would have enjoyed had the marriage or household not been dissolved.
- The tax consequences to the parties.
- The non-monetary contributions that the parents will make toward the care and well-being of the child.
- The educational needs of either parent.
- A determination that the gross income of one parent is substantially less than the other parent’s gross income.
- The needs of the children of the non-custodial parent for whom the non-custodial parent is providing support who are not subject to the instant action and whose support has not been deducted from income.
- Any other factors the court determines are relevant in each case.
The formula allows you to quickly calculate child support based on income. It’s a good pace to start, but parents must also consider expected expenses in detail, and make adjustments to child support as necessary.
Couples may agree to an amount different from the formula. This may also be negotiated through mediation, collaborative divorce or their attorneys.
Agreements are not valid until approved by the court. It must state what the basic child support obligation would have been, and why your agreement should be adopted instead. In court, a judge would consider other factors in addition to the formula when determining child support.
Each state may have different laws, formulas, or guidelines for support payments pertaining to divorce. Your attorney can provide advice and calculations based on your unique situation. I am not an attorney and I do not provide legal advice.
Please note, changes in tax laws may occur at any time and could have substantial impact upon each person’s situation. You should discuss tax or legal matters with the appropriate professional.
The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing is accurate or complete. The example mentioned above is for illustrative purposes only. Actual results will vary.