Friday, April 15, 2005

Would Kevin Federline be required to pay child support to Britney Spears?

I realize that the happy couple only recently announced that they are with child so it puts quite a damper on the festive mood to even speculate on the possibility that one day they may no longer be the paradigm of wedded bliss that they are today. And it seems like such a shame to use the Spears/Federline unborn child as an example. However, they are really here simply as an illustration, to help us understand the way child support laws can work. This example will tell us how it is possible, that someone who appears to have no talent and very few marketable skills as well as little to no income of his own (Kev) would have to pay child support to someone who consistently rakes in more than the Gross National Product of some small countries (Brit). I would note here that Britney also appears on the surface to be somewhat limited in the talent and marketable skills department but since she will probably earn more this month than I will earn all year, I do not want to jump on the "Britney has no talent bandwagon" just because I am a bit envious of her bank balance. What is important to note here is that Britney earns quite a lot and Kevin earns very little but, when...... excuse me, if......... they do be-bop down break-up lane, Kev may be writing checks payable to Britney ...from his own bank account.

As I have absolutely no firsthand knowledge of their income, assets and/or (most importantly) their alleged prenuptial agreement, I can only make some reasonably educated guesses and suppositions and fill in the blanks with some hypotheticals. Now, as an attorney, I usually learn a bit more about my clients than reading an article about them in People magazine, but we will make do for the purposes of a good illustration. As an aside, it is very difficult for prenuptial agreements to address child support, especially for a child that does not even exist at the time the agreement is written, so the terms of the Brit/Kev prenup, even if known, may not affect this analysis. Additionally, for the purpose of this analysis, we will assume that Britney will not be required to pay alimony to Kevin in the event of a split.

I do not know what state Britney and her beloved consider home but I will tackle this question based on Pennsylvania law. Now that the pesky, and sometimes dry, issue of jurisdiction is out of the way, the first step in a child support analysis is determining what each party makes. Of course, if we were actually involved in the Britney vs. Kevin child support case, this question could take years, and lots of expensive litigation to answer, as we crawled through the books and records of Britney’s various enterprises to determine her "net income available for support." Looking at Kev’s situation could be equally as tedious because we do not simply take his word that he has no job and therefore nothing to contribute to his child. If we allowed that, we would (most unfortunately) have a nation full of divorced parents simply stating that they do not work so they do not have to pay — and lots of children would be going without their proper due.

Anyway, let’s assume, just for the purposes of moving this along, that Britney earns $95,000 per month and Kevin earns $5,000 per month. That means these parents together have an available income of $100,000 per month. Now, in Pennsylvania, we have something called child support guidelines and, normally, we would just plug this number into a chart and determine the child support amount. Here, unlike her last record, Britney would be "off the charts" as the guideline numbers stop at $15,000. So the next step, according to the case law of Pennsylvania, would be to determine the "reasonable needs" of the Brit/Kev offspring. As you can imagine, considering that Britney has been photographed with a Burberry carrier for her DOG, no expense would be spared for this child. Incidentally, if this were the real case, determining the child’s reasonable needs would probably require another year of litigation as a trial would be held to sort through the receipts and so forth to determine this child’s reasonable needs. (Warning – because the words "reasonable" and "needs" can have many different meanings, the actual result when these questions are put before a real live judge can be highly unpredictable - is it reasonable for a child to wear couture - does a child need a pony, etc.?)

Again, to move this story along, let’s say the this child reasonably requires $20,000 per month to live. Now stop thinking that entire families live on the amount for a whole year because that means you are not getting into the spirit of this example.

We already determined that Brit earns $95,000 per month and Kevin earns $5,000 - so she earns 95% and he earns 5%. Of the available income We look at the child’s reasonable needs and apply Kev’s percentage to that number. By the way - this entire example assumes that Britney has "primary custody" of this child for more than 65% of the time. Applying Kev’s 5% to the $20,000 gives us a child support amount of $1,000. So, based on these numbers - Kev will be writing a check for the tidy sum of $1,000 per month to Britney. Now I realize that we assumed that Britney will not be required to pay Kevin alimony -- but just in case you were wondering -- even if she did -- his child support would be deducted from his alimony payment.

How did this happen? Britney appears to have money flowing in like magic - why would we require Kev to pay money to such a wealthy woman? The answer is "responsibility." This child is Kev’s also and he is responsible for making a portion of his income available. It doesn’t matter if the custodial parent doesn’t necessarily need it – the point is that it’s his child and his burden so he has to pay.

So congratulations to the happy couple on the impending birth of their first born. I wish them love, health and happiness and I hope they never have to slog it out in court over these calculations. But if they do, maybe one of them will move to Pennsylvania and hire me!

Thursday, April 14, 2005

Pennsylvania child support - mortgage supplement

ONE SPOUSE SHOULD NOT BE LIABLE FOR CHOICE OF RESIDENCE OF OTHER SPOUSE

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.