Child and spousal support payments are common legal obligations that courts order daily throughout the entire country. But what happens when those payments are late or never arrive?
Generally, the term “arrears” is used to describe child or spousal support payments that have not been paid when due. Arrears, however, is a term of art which includes the principal amount due as well as accrued interest.
The term should never be used to refer to only the unpaid support payments, and care should be taken to include and identify the interest component of any arrearage.
These payments are unique as they have been ordered by a court and each failed payment is treated as a separate judgment. Yes, a judgment, like any other civil debt. The court may also award additional amounts such as fees to cover collection costs, attorney fees, and most importantly interest.
This is not to be confused with retroactive support. Retroactive support and support arrears are often used interchangeably but are very different.
Despite what the name might imply, retroactive support does not refer to past-due support payments. Rather, retroactive support is support determined from when support ‘should’ have started to the present date.
This support has not been ordered or adjudicated therefore it is pre-judgment. Many courts have the option to award retroactive support for a period determined by statute or possibly all the way back to when the parties no longer resided in the same household or without their minor children.
Often, retroactive support does not mandate the imposition of interest as the amount was never ‘set’.
Is your client owed interest on their unpaid support?
Court ordered judgments entitle the recipient to receive interest for the unpaid obligation in most states. With retroactive support, the answer is not as straightforward.
Each state will have its own statute or case law on point, which should be reviewed for relief. When calculating the retroactive child support amount, the court will use the state’s support guidelines, as well as both parties’ income for the retroactive period under consideration.
It is important to note that the court may give credit for any support payments made during the retroactive period.
How much interest is owed v. principal?
The principal support obligation is simply calculated by adding all the back owed support payments.
Calculating appropriate interest poses unique issues. Each support payment missed is treated like a separate judgment with interest applied (simple or compounded) to each missed payment according to state law.
To complicate matters further, many states offer a grace period before interest accrues, and the application of payments to the current obligation, unpaid principal and accrued interest vary.
Courts have the authority to charge interest on unpaid support at the rate set by state statute. The interest is generally determined in the same way as other civil judgments. Interest varies from state to state but can be as low as 0.50% and as high as 12%.
Interest on unpaid support acts as both an incentive to encourage timely payments as well as a penalty for those who do not make payments. Most states have a constant annual interest, but a few states change their interest rates quarterly. This poses a mathematical nightmare.
If you or your client is owed unpaid or retroactive child or spousal support, it is time do some math.
The fact that the payer may make sporadic support payments, which have to be factored in when computing interest on arrears, further complicates things.
And when a payment is made, do we apply it to the most recent payment due, or to back interest, or to accrued principal? This affects the amount of arrears due, and it also varies from state to state.
Not only that, but there are situations where a judge changes the support payment amount. So there are missed payments at two or more different levels.
All in all, quite a complicated calculation!
With Family Law Software we make the entire process seamless with integrated interest rates, grace periods, lump or single payment application, and separate principal balance.
Want to see this all in action? Check out our webinar on Arrears here: https://www.youtube.com/watch?v=JBD78kzg6Dw
Family Law Software Power Webinar Arrears: https://www.youtube.com/watch?v=JBD78kzg6Dw
U.S. Department of Health and Human Services Office of Child Support Enforcement: https://ocsp.acf.hhs.gov/irg/profile.html?selection=STA&stateGeoBox=12
National Conference of State Legislatures: Summary of Interest on Child Support Arrears: https://www.ncsl.org/research/human-services/interest-on-child-support-arrears.aspx