Right to Child Support

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Child support is paid between parents for the benefit of their children. It is up to the parents to timely file for support to get a support award established. They are also responsible for seeking any necessary modifications. Change in income of either party or a change in the custody schedule for the child can impact the amount of support owed. If you have requested support through the court, the court will assist in monitoring compliance with the order as well as petitions for contempt and enforcement for lack of compliance. If you have a private agreement for child support, you will need to keep track of payments and file for relief with the court if there is an issue.

While support is for the benefit of a child, the child cannot legally make any demands regarding support or seek to recoup payments. This issue has been previously addressed by the courts in Pennsylvania. In Chen v. Chen, 893 A.2d 87 (2006), parents had entered into a Propery Settlement Agreement with provisions for child support. Father had an obligation to notify of income changes that may warrant an increase in support but he never did. The parties’ daughter, once 18, filed to intervene in a pending petition for contempt and enforcement of the agreement which was initially filed by Mother. Daughter argued that as the intended beneficiary of the support, she had standing to pursue enforcement. The lower courts agreed and calculated unpaid support of over $59,000 due to Father’s failure to update the support award over the years despite increased income. The Supreme Court of Pennsylvania reversed the prior decisions finding that while children may be incidental beneficiaries of a support award, they do not have a direct interest in receiving cash payments. Instead, the intent is for support of the child generally through the parent with custody.

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Alimony

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Alimony is support paid to an ex-spouse following divorce. The amount of alimony is usually based on the incomes of the parties. It is not uncommon for the amount of alimony to be considered in the context of the equitable distribution of marital assets, if any. Unless otherwise stated by agreement, the amount of alimony may be modified due the changed circumstances of either party. These changes must be substantial and of a continuing nature. Parties reaching their own agreement for alimony may contract for non-modifiable alimony.

The duration of alimony is based on the length of the marriage. For example, a party may expect approximately 1 year of alimony for every 3 years married. For marriages of over 25 years, an indefinite term of alimony may be appropriate. If the parties include alimony as a part of their own settlement agreement, they are free to set the amount and length of the alimony as they so agree. Previously, alimony was a tax deduction for the party paying the support while the party receiving the support had to claim it as income. Pursuant to the Tax Cuts and Jobs Act, alimony is no longer a taxable event. This change in the tax treatment of alimony became effective January 1, 2019. If your Order for alimony was entered prior to that date, the prior rules will continue to apply.  By April M. Townsend

 

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Earning Capacity

In a support matter, the incomes of the parties will be used to calculate an appropriate award based on the support guidelines applicable throughout the Commonwealth. At the initial appearance for a support matter, both parties are asked to bring in proof of their income in the form of W-2s, tax returns, pay stubs, or other documentation of income received. If a party is unemployed or underemployed, the rules specify that an earning capacity may be imputed. Pennsylvania Rule of Civil Procedure 1910.16-2(d)(4) explains the first step is a finding that a party willfully failed to obtain or maintain appropriate employment. Involuntary reductions in income (e.g. lay-offs or unemployment due to illness or disability) generally do not trigger earning capacity arguments.

If the reduction in income is seen as voluntary or willful (e.g. took a lower paying job or cut hours) then the court may impute an income consistent with that party’s earning capacity. Factors to consider when trying to identify an appropriate earning capacity include age, level of education, special training/skill set, work experience and prior earnings history. A Judge must explain the rationale behind any earning capacity that is assessed against a party. The earning capacity provision exists so that parties who have a support obligation cannot escape their obligation by purposely leaving their jobs or otherwise lowering their income. Under- or un-employed parties seeking to avoid imputation of an earning capacity should be prepared to show they have taken good faith efforts to secure comparable employment and that any reduction in income was for a valid purpose.

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PASCDU

If you are paying or receiving support in Pennsylvania you are likely dealing with PASCDU. The acronym stands for the Pennsylvania Statewide Collection and Disbursement Unit. They are responsible for collecting support from the payors and giving support to the payees. Payors are warned at the time an award is established that they will not receive credit for direct payments to the payee and all payments must go through PASCDU. Payors should receive information on sending payments to PASCDU at their support conference or hearing. Local domestic relations offices may be able to accept payments as well. Wage garnishment is the preferred method of collection for support. Once it is set up, payors do not need to worry about sending payments in any longer as the support due will be automatically withheld from their pay.

Payees should receive information on receiving payments from PASCDU at the support proceeding. They can elect to receive the money on an electronic card similar to a debit card or they can provide their bank information to allow for direct deposit. If electing to receive support via direct deposit, the payee must have their bank complete an enrollment form. PASCDU keeps track of all payments in and out and will generate contempt petitions if payments fall behind. For parties having issues with support the first step to take is to contact your local domestic relations office. PASCDU is located in Harrisburg. Additional information is available online at https://www.humanservices.state.pa.us/CSWS/

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Filing for Support

23 Pa C.S. Section 4321 provides that married persons are liable for the support of their spouse according to their respective abilities to provide and parents are liable for the support of their unemancipated children under 18 years of age. Domestic Relations is the branch of the court that handles support applications. An application for support can be filed with their office in the county where you reside or where the payor resides. An application can also be initiated online through the support program website. Support between spouses is based on the difference in income. 40% of the difference in income can be awarded in a case where there are no children. 30% of the difference in income is appropriate where there is also a child support component. Child support in Pennsylvania is based on statewide guidelines established by the Pennsylvania Supreme Court. The guidelines are based on an “Income Shares Model” such that the guideline amount is shared by the parties based on percentage of custody time as well as percentage of income.

Once an application for support is filed a conference is scheduled. Both parties are instructed to bring relevant documentation to the hearing including pay stubs, last filed tax return/W-2, proof of health insurance coverage and costs, childcare expenses, etc. At the conference an officer will use the income information to complete a calculation and advise of the support award. If there are any issues concerning incomes or expenses or the suggested amount of support, the parties have the option to request a hearing for further review. Though it may take several weeks to get to the conference following submission of an application for support, support awards are retroactive to the date of filing so that applicants can receive support for that time despite the wait for a court date.

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Diminishing Credit

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Diminishing credit is a concept that property brought into a marriage loses its separate nature and becomes marital in nature as the marriage progresses. The court may give credit for separate property brought into the marriage depending on the circumstances. Generally, any credit to be received decreases with the length of the marriage. For example, Bucks County will reduce the credit by 5% a year such that there is no longer a credit after 20 years. A prime example of a situation where this rule would be applicable is the purchase of a marital home. Say Spouse A contributed $40,000 of their pre-marital money to the purchase of the house. If the parties separated after 5 years, the amount of Spouse A’s individual contribution is reduced by 25%. Accordingly, Spouse A would argue that 75% of the $40,000 down payment, or $30,000, is their separate property and not subject to equitable distribution in the divorce. In contrast, Chester County applies a 10% reduction per year so that after 10 years there is no credit. In the above example, after 5 years 50% of the credit will have vanished so that Spouse A would only be able to assert $20,000 as separate property not subject to equitable distribution.

Since the diminishing credit is not a statute or official rule but more or less a policy used by the respective Masters when looking at the marital estate in a divorce matter, it varies from county and county. In that regard, it is important to work with an attorney who is familiar with the county where you are seeking a divorce. It is practical advice to avoid where possible the commingling of individual property with marital property. It will be hard to make an argument on the amount of individual property that should be credited to a party if it’s hard to trace the source of the funds. You ultimately risk all of the assets being addressed as marital property in equitable distribution and subject to division with your spouse if you cannot provide clear proof of their separate nature.

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Unreimbursed Medical Expenses

You may be able to get reimbursed for medical expenses if you have an existing support order. Unreimbursed medical expenses may be allocated between the parties in a support matter in proportion to their income under Pa. R.C.P. 1910.16-6. The court may include the expenses within the support order or direct that it is paid directly to the party receiving support or their healthcare provider. The first $250 per year is the responsibility of the party incurring the expense. This $250 threshold is per person for orders that cover multiple persons. The parties will only need to share expenses that exceed $250 per year per person. Proof of the unreimbursed expenses should be timely supplied to the other party but must be supplied to the other party and Domestic Relations no later than March 31st of the following year. Parties are certainly encouraged to work things out amongst themselves prior to this deadline.

A limit may be placed on the amount to be reimbursed if it would otherwise be excessive. Domestic Relations can assist in the collection of unreimbursed expenses if the other party still refuses to pay their share after receiving timely documentation of the expenses. Untimely submission of unreimbursed expenses is left to the discretion of the court as far as if they will still be allocated between the parties. Medical expenses that are eligible for reimbursement include co-pays and expenses for reasonable, necessary supplies or services. Surgical, optical, dental and orthodontic expenses are also included. Some expenses are excluded by Pa. R.C.P. 1910.16-6. Expenses that are not eligible for reimbursement include cosmetic, chiropractic, psychiatric and psychological expenses. These expenses may ultimately be included by mutual agreement or specific order of the court.

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Physician Verification Form

Each party’s income is relevant in the context of a support action. Pennsylvania can assign an earning capacity for parties who are voluntarily unemployed or underemployed. There are recognized exceptions to avoid having income imputed if you do not work. One of those exceptions is if you are physically incapable of working. In the event that a party in a support matter asserts an inability to work due to medical issues, the support rules require that a physician verification form be completed. Pursuant to Pennsylvania Rule of Civil Procedure (Pa. R.C.P.) 1910.29 (b), the physician verification form should be completed by the party’s physician and submitted at the time of the support conference. A sample of the actual form to be used is contained in Pa.R.C.P. 1910.29(b)(3).

If the support matter does not settle at the conference and a hearing will be necessary, the physician verification form can be admitted into evidence if certain requirements are met. First, the party intending to use the physician verification form must serve a copy on the other side within 20 days from the conference date. The other party then has 10 days from receipt of the physician verification form to file an objection. If no objection is received, the form may be accepted into evidence without requiring the physician’s testimony. If an objection is made, the physician would need to testify in court and the court would determine how the cost of the testimony will be divided among the parties.

If a party receives Social Security disability or workers’ compensation benefits, proof of income from those sources would be submitted in lieu of the physician verification form. The amount of Social Security disability or workers’ compensation is treated as income for support purposes and utilized for any applicable support calculations in their case.

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Stock Options as Income

Stock benefits are often given to employees as part of their compensation or as an incentive to remain with the company. One of the factors to consider when dealing with stock benefits is whether the benefits are vested or not. Vesting is when all restrictions on the exercise of stock benefits are lifted. Each employer may have different rules on how long it takes benefits to vest. It is important to review the grant documents for the benefits to understand how they work and when they will vest.

The value of stock on its vesting date can be considered income to the employee. Any appreciation after vesting is capital gain. Any subsequent exercise of stock benefits is taxable. Tax consequences may be reflected on the employee’s W-2 or the employee may need to report the receipt of income from stock options separately. The Pennsylvania Superior Court addressed stock options as income in Murphy v. McDermott. However, the court also noted that a one-time exercise of stock options should not be imputed for future years. The court may impute the value of unexercised stock options to the employee if they are available for exercise. A good family law practitioner should be able to identify all possible sources of income for each case.

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Allocation of Support

Allocation is the identification of separate portions of a support award where a party receives both child support and some form of spousal support simultaneously. Child support and alimony payments have different tax consequences. Child support is not tax deductible by the payor or taxed as income to the payee. The exact opposite is true of alimony. Alimony can be claimed as a tax deduction for the payor and must be claimed as income by the payee. Parties can reach a mutual agreement to allocate a support award however they see fit. Where support is calculated pursuant to the guidelines, the Order will spell out what portion of the support award is child support versus what portion of the support award is alimony.

Child support is payable to the custodial parent until the child is 18 or graduates high school, whichever is later. Child support is subject to modification based on a change in circumstances such as different income for the parents, different expenses for the child or a different custody schedule. Alimony is support paid to an ex-spouse following the divorce decree. The amount of alimony is largely based on the incomes of the parties but may also be affected by the distribution of the other assets, if any. Unless otherwise stated by agreement, alimony may be subsequently modified due the changed circumstances of either party. The changes must be substantial and of a continuing nature. As previously alluded to, an alimony provision within an agreement between the parties may not be modified in the absence of a specific provision allowing such a modification within the agreement.

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