North Carolina has adopted the income shares model for child support. Child support is a shared parental responsibility and the child should receive that amount of each parents’ income that the child would receive were the parents still raising the child together.

The North Carolina Child Support Guidelines (“the guidelines”) provide a relatively fair and practical method for determining each parent’s child support obligation. They are based on a mathematical computation designed to remove the emotional strife associated with the support and needs of a child. The guidelines are adopted by the North Carolina General Statutes in Chapter 50 Section 13.4(c).

However, the fairness and equity built into the Guidelines is directly dependent upon their proper application. Incorrect application of the guidelines can and does result in inequitable results. One way to ensure proper application of the Guidelines is to make sure you explain your gross income to your attorney and that he or she explains it to the Court.

What is Gross Income

Gross income is income from ALL sources. This includes: wages, bonuses, dividends, retirement income, income from rental property, income from trusts, gifts, alimony, and essentially any other monies to which a parent has access.

Under the guidelines, benefits received from means-tested public assistance programs and some other limited sources of money are not included as gross income. These include: food stamps, SSI income, TANF income, child support from another parent of another child, employer contributions to Social Security, Medicare, and contributions by employers to third parties for health, disability, life insurance, or retirement which are not withheld or deducted from the employee’s wages.

 Overtime and Bonus Pay Indexing

The guidelines state that “when income is received on an irregular, non-recurring, or one-time basis, the court may average or prorate the income over a specified period of time or require an obligor to pay as child support a percentage of his or her non-recurring income that is equivalent to the percentage of his or her recurring income paid for child support.” (emphasis added).

Thus, if gross income of the parties is calculated leaving out overtime and bonus pay under the appropriate worksheet, then the resulting monthly child support payment would reflect some number which, if divided by the non-custodial parent’s gross income as calculated in the worksheet, would result in a percentage that could then be ordered to be paid of the overtime and/or bonus pay.

 Open for interpretation is whether other adjustments, such as work-related child care, insurance, and extraordinary expenses should be included when determining the percentage of overtime to be paid. In fairness, to include those adjustments in a determination of the percentage of overtime and/or bonus pay to be paid, is in essence granting two separate sets of adjustments when only one is warranted.

Benefits to Indexing

 Indexing overtime and bonus pay to a percentage has the following benefits to the parents and child:

1. It need not be paid by the obligor on a monthly basis and can be ordered paid as received lessening the likelihood that the obligor falls behind in his/her payments;
2. If the obligor’s overtime is reduced by his employer, the obligor is not forced to file a motion to modify or be subject to a show cause order in contempt for failing to pay that which he no longer has the ability to pay;
3. If the obligor’s employer increases his overtime, he pays more for the benefit of his child without the need for the obligee to file a motion to modify;
4. There is less of a chance that the obligor will fall behind in his child support payments due to fluctuating gross income because the income most likely to fluctuate is indexed to a percentage;
5. It is not the most often used provision of the Guidelines; and
6. Generally, an order indexing bonus or overtime pay to a percentage will include a provision requiring the parties to share income information on a regular basis thereby making significant changes in income of the other parent evident which allows both parents to react quickly to said significant changes in normal recurring income so as to better capture child support.

In conclusion, if an income shares model is desired in North Carolina, then indexing overtime and bonus pay achieves this goal fairly and reasonably to the maximum benefit of the child. It captures money that would otherwise not be collected for the child and prevents unnecessary litigation by accounting for uncontrollable employer dictated reductions in bonus and overtime pay. If you have a child support issue, make sure to hire a licensed attorney in your jurisdiction to help you and provide you with appropriate advice pursuant to the laws of that jurisdiction. If you have a child support issue in North Carolina, make sure to tell that attorney where exactly your income is coming from so that he can advise you whether indexing your bonus and overtime pay is appropriate in your situation.

• Air Force: Air Force Instruction 36-2906 (Personal Financial Responsibility) 
• Army: Army Regulation 608-99, Chapter 2, Section II 
• Coast Guard: Coast Guard Personnel Manual, Chapter 8.M 
• Marines: Marine Corps Legal Administration Manual, Chapter 15 (MCOP5800.16A) 
• Navy: Navy Military Personnel Manual, Section 1754-30 (MILPERSMAN)

 

If a service member improperly refuses to pay support, a service member’s spouse should send a complaint to the appropriate commanding officer (i.e. battalion commander) requesting enforcement of the court order or military’s requirements. Failure to pay support may be punished as a criminal offense under the Uniform Code of Military Justice (UCMJ). The Federal government may garnish a soldier’s pay up to a maximum of 55%, but North Carolina will only garnish up to 40% of a soldier’s pay.In North Carolina, a district court hears child support cases in the county in which the child resides. Generally, the noncustodial parent must have minimum contacts with North Carolina for it to exercise jurisdiction over the child support case. This does not mean that a noncustodial parent may move from North Carolina to another State in an attempt to lower their child support obligation, because certain laws exist to prevent that situation. If a child and custodial parent move to North Carolina, then the noncustodial parent may attempt to get a North Carolina court order to pay support according to the North Carolina guidelines. However, the court has the power to modify child support upwards or downwards. 

Waivers of support obligations are sometimes available to service members. For instance, in the Navy, a service member may request a waiver of the requirement to pay spousal support if the sailor provides evidence of physical abuse or infidelity. The Navy also has a waiver process for child support; say for instance, if it is apparent that the person requesting child support does not have physical custody of the child. Even if a service member is granted a waiver by a commanding officer, the service member’s spouse may seek enforcement through a higher authority in the military and/or from a civilian court. A waiver is unlikely to override a court’s order, and so a service member should still consult a JAG or civilian attorney in North Carolina to ensure that the service member is in compliance. If a North Carolina court finds that the service member failed to pay child support or spousal support required by law or under an order it will likely find the service member in contempt and possibly award attorney fees to the custodial parent. Even if no court order exists, a service member may be required to pay retroactive child support if the custodial parent makes this claim. 

Any received Family Separation Allowance (FSA) should be factored into support obligations when negotiating a SAPS. Service members must be prepared to repay FSA if they are in the midst of a separation in North Carolina. According to the Department of Defense Financial Management Regulations, the military will attempt to recoup from the service member any FSA paid since the date of separation. In North Carolina, the date of separation will be in a SAPS and a divorce decree because North Carolina divorce law is based on one year of separation. (This is an anomaly because other states may not require a specific separation date to be included in divorce documents so service members may keep the FSA.) There is an exception to recoupment based upon the amount of time the service member’s child would reside with the service member but for their current assignment. The same threat of recoupment likely applies to the service member’s other allowances. 

Everyone should understand that the military’s purpose for their support requirements is to be a temporary solution. The military prefers assisting with enforcement of SAPS and orders, rather than setting a long term support amount. Once a SAPS is signed or court order on support is entered it is the controlling document. 

The law on relocation differs depending on whether a child’s custody has been litigated, and whether a child’s custody is addressed in a Separation Agreement. If the parties have not litigated issues related to their child and do not have a Separation Agreement, it is possible to relocate immediately inside or outside of North Carolina prior to litigating custody and/or child support. If the new location is in another state, consult an attorney in that state for advice on how much time you must reside there before filing a custody action. Generally, a person is also allowed to take their child and move immediately to a new location if domestic violence is involved.

If parents have litigated custody or have a Separation Agreement, and relocation is not agreed to by both parents, an attorney will likely file a Motion to Modify Visitation or Custody. There are several recent North Carolina cases involving these motions, essentially requesting the court’s permission to relocate. The parties in these North Carolina cases had different reasons for requesting that the court grant their motions, but a similar test was applied by the courts in the cases. The courts considered the child’s best interests to determine whether to modify custody or visitation. A court might also refuse to modify a prior Order unless a substantial change of circumstances has occurred; however, a move for employment reasons is likely a substantial change of circumstances. Based upon these cases, a court will likely use several factors to determine the child’s best interests. These factors include:

…the advantages of the relocation in terms of its capacity to improve the life of the child; the motives of the custodial parent in seeking the move; the likelihood that the custodial parent will comply with visitation orders when he or she is no longer subject to the jurisdiction of the courts of North Carolina; the integrity of the noncustodial parent in resisting the relocation; and the likelihood that a realistic visitation schedule can be arranged which will preserve and foster the parental relationship with the noncustodial parent.

—Evans v. Evans, 138 N.C.App. 135, 142, 530 S.E.2d 576, 580 (2000).

If a North Carolina trial court uses these factors to determine the child’s best interests its decision is more likely to be upheld on appeal.

A court also has the discretion to reduce child support payments in a case involving relocation. If a court allows relocation of a parent and child, that court will have possibly held that a substantial change of circumstances occurred. As a result, that court may not only modify custody, the court may also modify child support. A court can increase or decrease child support, and a court can deviate from the North Carolina child support guidelines. For instance, a court might suspend a parent’s child support obligation so that the non custodial parent can visit the child in the new location.

Preparation is important when attempting to relocate. It is wise to first consult the other biological parent, and to memorialize any agreement in writing, at which time an attorney can draft a consent order or modification of a Separation Agreement as appropriate. If no agreement is reached, consult an attorney to prepare a Motion to Modify Visitation or similar action, and also consider child support. In all cases, your ability to relocate will depend on what is in the best interests of your child.

Perry was ordered to pay child support to Amy based on Amy’s gross income before deductions for Social Security and Medicare (FICA) taxes, medical insurance premiums, life and disability insurance premiums, and her employer’s contributions to Defendant’s retirement and 401(k) plans.

This seems consistent with the NC Child Support Guidelines which define gross income as “income before deductions for federal or state income taxes, Social Security or Medicare taxes, health insurance premiums, retirement contributions, or other amounts withheld from income.”

However, Amy appealed claiming that these deductions should not have been included in her gross income for the purpose of calculating child support. And the NC Court of Appeals agreed with her.

The NC Court of Appeals found this to be an issue of first impression and ruled that contributions made by an employer to an employee’s retirement accounts, including any 401(k) accounts, and insurance premiums may not be included as income for the purposes of the employee’s child-support obligations unless a trial court, after making the relevant findings, determines that the employer’s contributions immediately support the employee in a way that is akin to income.

The Court also distinguished between income that a parent has immediate access to and income the parent can access without incurring a penalty. If the income reduces living expenses, it should be counted as income. As to employer contributions to retirement plans, the following factors should be considered in assessing whether benefits should be considered as income: (1) a parent’s control of whether or in what amount a retirement contribution is made; (2) the parents’ established course of conduct in retirement planning (prior to and after the dissolution); (3) the amount of the contribution (from nominal to a large amount that could suggest the inappropriate sheltering of income); (4) whether and to what extent there are incentives for the contribution; (5) whether the contribution qualifies for favorable tax treatment; and (7) any other relevant evidence.

This new ruling together with the New Child Support Guidelines to be released 1 October 2010 should make for exciting litigation of child support issues in the coming months.

The case is Caskey v. Caskey, ___ N.C.App. ___ (2010).

In accordance with state law, the Conference of Chief District Court Judges reviews the statewide presumptive child support guidelines every four years. The Public was invited to comment by 15 April 2010 and a public hearing was held 22 April 2010 in Raleigh. The new guidelines will be published at nccourts.org and replace the current guidelines in effect.

North Carolina’s child support guidelines apply as a rebuttable presumption in all legal proceedings involving the child support obligation of a parent. The guidelines are based on the “income shares” model which is based on the concept that child support is a shared parental obligation and that a child should receive the same proportion of parental income he or she would have received if the child’s parents lived together.

The child support schedule that is a part of the guidelines is based on economic data which represent adjusted estimates of average total household spending for children between birth and age 18, excluding child care, health insurance, and health care costs in excess of $250 per year. Expenses incurred in the exercise of visitation are not factored into the guidelines. The guidelines assume that the parent who receives child support claims the tax exemptions for the child. If the parent who receives child support has minimal or no income tax liability, the court may consider requiring the custodial parent to assign the exemption to the supporting parent and deviate from the guidelines.

Significant change

Since the last guidelines were implemented, the minimum wage in North Carolina has increased forty-one percent from $5.15 to $7.25 per hour. Minimum wage is often used as imputed income to a parent who is voluntarily unemployed but capable of working. As the combined income of the parents increases, the amount of the basic child support obligation under the “income shares” model increases. Therefore, for families where minimum wage was used to impute income (e.g., stay-at-home moms), the income used under the new guidelines will be higher. This combined with new guidelines is expected to require even higher child support payments under the new guidelines.

Motions to Modify

Parents may file motions with the Court to modify child support obligations whenever there is a substantial change of circumstances affecting the welfare of the child. The party seeking the modification has the burden of proof. Substantial increases or decreases in the child’s needs, changes in income of the parents, and other factors may satisfy the requirement to show a substantial change of circumstances. A substantial change of circumstances is presumed whenever three years or more has passed since the entry of the last child support order and a difference of 15% or more payable under the existing order and application of the current guidelines would result. When there has been less than three years since the entry of the prior order, a new order may be entered on a motion to modify if substantial change of circumstances is shown.

With the new child support guidelines and families struggling in the current economy, it is expected that significant numbers of custodial parents will file motions to increase child support and non-custodial parents will defend such motions.

The Debt Collection Improvement Act of 1996 was enacted into law on April 26, 1996, to authorize the Secretary of the Treasury to collect past-due child support by the offset of Federal payments. The procedure is codified at 42 U.S.C. § 664.

In addition to federal tax intercepts, the State of North Carolina also intercepts state tax refunds to pay delinquent child support. N.C. Gen. Stat. § 105A establishes a procedure by which debts owed to state agencies are deducted from state tax refunds. N.C. Gen. Stat. § 105A-1 (1995).

Tax intercept triggers

Non-custodial parents (NCP) who owe more than $150 in child support arrears ($500 for those cases where the parent did not receive public assistance) are subject to a tax intercept of their federal tax refunds unless excluded by Davis vs. NC Department of Human Resources, 349 N.C. 208, 505 S.E.2d 77 (1998). Non-custodial parents who owe more than $50 in arrears are subject to tax intercept of state taxes unless excluded by the Davis decision. Davis holds that a NCP who is in compliance with a court-ordered repayment plan for arrearages should not be certified for Federal tax intercept (offset), even if a debt of past paid assistance is still owed.

The Federal Income Tax Refund Offset program is operated by the U.S. Department of Treasury’s Financial Management Service and the State Income Tax Refund Offset program is operated by the N.C. Department of Revenue.

Notification

Before a tax intercept occurs, the non-custodial parent is notified. On or about 30 September of each year, a Pre-Offset Notice is sent to non-custodial parents who are listed for federal tax intercept that includes certified arrearage amounts. An NCP has thirty days from the date of the notice to appeal.

NCPs receive a notice informing them of the total arrearages that are being certified for tax intercept. If current support has not been satisfied when state income taxes are intercepted, current support is paid first and then arrearages are credited with any remaining amount.

The spouse of an NCP may file IRS form 8379 Injured Spouse Claim and Allocation Form with the IRS to protect their rights as to any federal refund.

Appeals

After the agency receives the tax intercept, it is required under N.C. Gen. Stat. § 105A-8 to notify the debtor it has intercepted the tax refund. The notice must inform the debtor that the debtor has the right to contest the matter by filing a request for a hearing, the time limits and procedure for requesting the hearing. Read a petition for a contested case hearing under N.C. Gen. Stat. Ch. 105A, N.C. Gen. Stat. § 110-140 and 45 C.F.R. 303.72.

Resolution

While a non-custodial parent who has his or her tax refund intercepted should appeal if the certified arrearage amount is incorrect, winning the appeal does not bring permanent closure to the issue. The Administrative Law Judge’s ruling is not binding on future garnishments. For complete and final closure, the NPC should consider a declaratory judgment action to determine the arrears or other action that will be binding on future determinations.

An individual cannot voluntarily terminate their parental rights. In Re: Matter of Jurga, 123 N.C.App. 91, 472 S.E.2d 223 (1996). A Consent Order or other document to that effect is void as a matter of law. Neither one parent nor both may unilaterally terminate parental rights. There must be grounds and there must be a court hearing to determine whether it is in the best interests of the minor child(ren).

While an individual can voluntarily consent to the adoption of his or her children, an adoption is void if it was in consideration for money (e.g., cancellation of a child support obligation). Stanly County Dept. of Social Services ex rel. Dennis v. Reeder, 127 N.C.App. 723, 493 S.E.2d 70 (1997). A valid adoption will terminate the parent’s rights and no future child support will be due but any past due child support will continued to be owed for the benefit of the minor child.

In some cases, “what the court givith, the IRS taketh away.” Depending on the language in certain court orders, this change in legislation may allow a custodial parent to revoke a dependency exemption despite what a state judge ordered in a divorce decree.

A recent review of the Internal Revenue Code revealed the change in 2008. The change in law is a result of court cases and comments from the public and tax professionals. A custodial parent is now likely able to release or revoke an exemption for a child from a noncustodial parent. According to the IRS website, “if the custodial parent provides notice of revocation to the noncustodial parent in 2009, the earliest tax year the revocation can be effective is the tax year beginning in 2010.” The IRS has also further clarified and modified its definitions of a custodial parent and noncustodial parent.

A revocation of a release will likely have federal and state tax implications for both parents. A custodial parent can revoke a previous release of an exemption on IRS form 8332. As a result, the noncustodial parent may be prevented from claiming the child exemption on their Federal return. Moreover, if the custodial parent revokes a release, the noncustodial parent may be prevented from claiming a child credit/deduction on their State return. Exceptions do exist to the new tax rules on release and revocation.

The change requires that the individual claiming an exemption attach specific paperwork to their tax return. The original tax form 8332, signed by the custodial parent, is usually required. Court cases have ruled that some previously acceptable documents are no longer accepted by the IRS in lieu of a signed form 8332. If a signed form 8332 is not available, noncustodial parents should immediately consult a tax professional to ensure they comply with the new requirements.

The IRS Web site, www.irs.gov, provides further explanation, definitions, and some examples.

IRS CIRCULAR 230 DISCLOSURE: Rice Law, PLLC does not provide tax advice. Accordingly, pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained herein (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.