Alternative Child Support Models

Washington Child Support Group

December 2007

Session II

Topics

• Economics of Divorce

• Alternative Child Support Models

• Differences in positions on Child Support

Economics of Divorce• Due to a loss of economies of scale in consumption (due to shared consumption

goods), without an adequate increase in the total resources to the two newly formed households, at least one of the households will be worse off compared to the martial state.

• What should be done?

– Award custody to parent with higher income?

– Award custody on other criteria or adopt a shared parenting arrangement and structure a payment from one parent to the other to

• Equalize the economic burden of divorce across the two household?• Continue the level of spending on the children that occurred in the martial state• Share in the current costs of the children• Share the loss in proportion to the parents income -- higher income parent would still be worse

off compared to the marital state but better off than the lower income parent

• Child Support Models differ based upon how they answer the question of what should be done? These are normative choices or judgments.

Criteria

• Normative Judgments of how the burden should be shared between the parties

• Procedural Fairness

• Simplicity

• Should the size of the award (order) be affected by the likelihood that the obligor will pay?

Alternative Child Support Models

• Income Shares -- Robert Williams

• Percentage of Income -- Irv Garfinkel

• Melson -- Judge Melson (Delaware)

• Hybrid Approaches -- Massachusetts and DC

• Cost Shares -- Donald Bieniewicz and Mark Rogers

• American Legal Institute (ALI) -- Ira Ellman and Grace Blumberg

Alternative Models in Use

Income Shares (33 States)

Percentage of Obligor Income (13 States)

Other [3 States (HI, DE, MT) are based on Melson Formula; 2 states (DC, MA) use a hybrid approach]

Key Points of Melson

• Delaware, Hawaii and Montana use the Melson model

• Divides the calculation of support into two parts: ‘basic needs’ and ‘standard of living’ payments

• Incorporates directly into the calculation of child support, the needs of the parents to live (the self support reserve is not computed after support has been calculated)

Melson CalculationCP NCP

Net Income $1,000 $2,000 $3,000 Self Support Allowance 750 750Net Income Available for Primary Support 250 1,250Share of Available Income for Primary Support (16.7%) (83.3%)

Primary Support (Basic Needs) 1 child = $312, 2 children = $577, 3 children = $815 $577

Primary Support Obligation $96 $481

Income available for SOLA (net income available - support obligation) $154 $769SOLA (1 child = .16, 2 children =.26, 3 children = .33) $40 $200

Total Obligation $136 $681 $817(13.6%) (34.1%) (27.2%)

Washington State $313 $627 $940

Questions about Melson

• Where should we set the self support reserve for adults?

• How are basic needs (primary support) to children to be defined?

• Use poverty thresholds? If we index these amounts each year should we also consider indexing the awards or the primary support level each year?

• Where do the Standard of Living Adjustment (SOLA) come from? How can we verify if they are reasonable?

Comparing Delaware Melson with Washington State

• The previous calculations reflect the Melson formula as applied in Delaware (Adult needs $750; primary support for 2 children $577; SOLA 26%)

• Computed obligations under the current Washington State guidelines but assumed an adult self support reserve of $750 same as Delaware).

Impact of Self Support Reserve Shown for Washington State

Impact of Self Support Reserve Shown for Washington State

Impact of Self Support Reserve Shown for Washington State

Hybrid Models

• Massachusetts and District of Columbia

• Up to a threshold level of income, a percentage of income model is used (non-obligor’s income only) then for incomes that are in excess of the threshold, an income shares model is employed.

Massachusetts• Basic Obligation for 2 children -- POI based upon weekly gross income

If gross weekly income of Obligor (GINCP) is:

Less than $101 discretion of court (min $20)

$101 to $280 BO =.24 x GINCP

$281 to $750 BO = $67 + .28 x (GINCP - 280)

Over $750 BO = $199 + .30 x (GINCP - 750)

• NCP’s Obligation = BO if CP’s income is less $385

• If CP’s gross weekly income (GICP) > $385 then

€

Obligation=BO×1−GICP −385( )

GINCP + GICP −385( )

⎡

⎣ ⎢ ⎢

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⎦ ⎥ ⎥

Key Points of Alternative Models

ALI

• Critical of Income Shares model because it doesn’t equalize incomes

• When CP Income < NCP Income, Income Shares is too low

• When CP Income > NCP Income, Income Shares is too high

Cost Shares

• Costs more to raise children in two households than it does in one household (intact)

• Should use single parent families to estimate child-rearing costs and modified USDA approach

• Child-related Tax Benefits should directly offset child-rearing costs

Similarities and Differences

• Both focus upon the current divorced status of the parents not the martial state as Income Shares and POI do

• Consequently, spending patterns among single parent families and childless single individuals become the focus of their spending estimates

• ALI is quite willing to rely upon equivalence scales to determine child spending patterns while Cost Shares advocates suggest that a modified USDA approach (one that does not use per capita allocations for categories and has different allocation for transportation) is preferable

How Much is Spent on Children after Divorce?

• Clearly spending on a child in single parent family depends upon the resources of custodial parent -- the wealthier the parent is the more they will spend on the children

• Assume if there is no child support payment, the custodial parent will determine spending on the child given their resources

• If support is paid on this amount of spending then when the support is received the custodial parent is wealthier and may spend more on the child

• Cost Shares in computing the amount of spending in the single parent family assumes that both parents have equal incomes

Difficulties of Comparison

• Neither model has been adopted and consequently implemented versions of these models are hard to locate

• ALI is more of a ‘concept’ than an implemented model -- Although Ellman is currently trying to get Arizona to do the research to implement his vision

• The only version of the Cost Shares I have been able to secure is based upon a report by Mark Rogers to the State of Alabama submitted in March 2006 although there wasn’t a worksheet included

Taxes

Jeff Rachel Rachel(Single) (HH Filer)

Income $57,022 $36,788 $36,788

Payroll Tax 4,362 2,814 2,814

Federal Income Tax Gross Liability 8,701 3,879 2,361 Child Tax Credit 0 0 2,000 Net Liability 8,701 3,879 361

After Tax Income $43,959 $30,095 $33,613 Monthly $3,663 $2,508 $2,801

Child Support

Jeff RachelCurrent Method (ignore tax benefits)

Combined Net Income (3,663+2,508=6,171)

BCSO = 743 441 302

Alternative Method 1

Combined Net Income (3,663+2,801=6,464)

BCSO=774 439 335

Alternative Method 2

Combined Net Income (3,663+2,508=6,171)

BCSO = 743

Subtract Tax Benefits from BCSO (2,801-2,501=293) 267 183

Discussion and Questions