Thursday, April 14, 2005

Pennsylvania child support - mortgage supplement


The Pennsylvania child support guidelines provide for an increase to the basic support obligation when the person receiving child support resides in the marital residence and the mortgage payment (including real estate taxes and homeowner’s insurance) exceeds 25% of that person’s net income. The mortgage adjustment provision attempts to provide some definition as to what constitutes an unusually high mortgage payment so that a deviation from the basic child support guidelines can be uniformly applied. Generally, if the couple is in separate households, a child support order is requested and established as soon as practically possible after a divorce complaint is filed. The couple begins to attempt to work out the division of the assets and the debts. Usually, although not always, the parent who has primary custody of the children stays in the marital residence and is financially responsible for maintaining the residence. It is at this juncture when the parties decide whether it is financially feasible for the custodial parent to remain in the residence after divorce.

The basic inquiry is whether the custodial parent will be able to refinance the marital residence in his or her own name and meet the monthly mortgage expenses. In some cases, the mortgage payment is higher after the refinancing because cash must be withdrawn from the equity in order to buy out the other person’s share. Combined with the change from a two-income to a one income household, it is not always a viable solution for the custodial parent to stay in the marital residence post divorce. Essentially, the same amount of income must support two separate households. Sometimes, the custodial parent decides to stay in the marital residence post-divorce, even though economic reality may dictate otherwise. This choice may be due to a desire not to uproot the children or change their school district or simply because this is the choice that the custodial parent prefers. In order to effectuate this plan, the custodial parent may need a cosigner on the re-financed mortgage, financial help from family or friends, an increase in income or the use of savings to provide for this choice. The mortgage adjustment added to child support requires the non-custodial parent to finance this choice, even if he or she does not agree. This is unreasonable.

The mortgage adjustment can best be demonstrated by using an example. If the non-custodial parent earns a net of $4,000 per month and the custodial parent earns a net of $2,000 per month, the basic child support obligation for two children would be approximately $1,020, assuming there are no other extraordinary costs. The shifting of income would result in the custodial parent having a total income of $3,020 per month. Pursuant to the mortgage adjustment, the non-custodial parent would also be required to pay 50% of any mortgage payment that exceeds 25% of the custodial parent’s net income, which, in this example, is $755. Thus, if the monthly mortgage payment, including taxes and real estate, is $2,000 per month, the child support obligation would increase by $633, setting the total child support obligation at $1,653 per month and providing the custodial parent with a total of $3,653 in monthly income. The non-custodial parent, after paying child support plus mortgage supplement, would be left with $2,347 per month, assuming there is no spousal support obligation. The custodial parent’s housing cost would still be approximately 55% of net income, an unrealistic amount to pay on an on-going basis. Additionally, the non-custodial parent helps to finance the custodial parent’s house, an asset which builds equity for the custodial parent and provides a tax deduction, benefits not available for the non-custodial parent. Theoretically, keeping the children in the same house after divorce would appear to promote stability in their lives. However, in many cases, the economic realities simply do not support the choice.

While the mortgage supplement might be a short-term solution to assure that enough funds are available to pay housing costs while the divorce is pending, applying the formula for post-divorce child support artificially increases the non-custodial parent’s support expenses. If the children are young at the time of divorce, this can amount to in excess of ten years of supplementing the custodial parent’s housing. Many financial decisions made during marriage are based on the budget of the household. Divorce changes that budget by requiring two household and thus doubling many basic living expenses. Thus, just because a couple made a certain fiscal decision as an intact family, does not mean they should be bound by that decision in divorce especially when there are simply not enough resources to support it.

Many non-custodial parents enjoy significant time with their children and need to maintain a home of sufficient size to host overnight stays with the children. Increasing the child support obligation with the mortgage supplement may use so much of the non-custodial parent’s income that maintenance of a home is cost-prohibitive, thus negatively affecting the children’s time with that parent. While the mortgage supplement may be an adequate short-term solution in some cases, its application post-divorce forces the non-custodial parent to fund the custodial parent’s housing choice. This results in an inequity.

1 comment:

prakash sharma said...
This comment has been removed by the author.