Calculating Child Support Awards: New Opportunities for CPAs (1992)

CALCULATING CHILD SUPPORT AWARDS: NEW OPPORTUNITIES FOR CPAs Lee G. Knight, PhD, and Ray A. Knight, CPA, JD, professors of accounting, Middle Tennessee State University, Murfreesboro, describe what CPAs need to know to enter an emerging field. CPAs seldom find new service opportunities in nontax federal legislation, especially if its objectives are of a social welfare nature. The Family Support Act of 1988 (FSA), however, was an exception to this rule. The FSA gave CPAs new opportunities and responsibilities in an area previously considered outside their realm--the calculation of child support awards. All states, as well as the District of Columbia and the territories of Guam, Puerto Rico and the Virgin Islands, now have their own formulabased child support guidelines to determine child support awards and wage withholding and to modify previous awards. CPAs should find a need for their expertise in translating the child support guidelines into hard numbers. FSA PROVISIONS The FSA required each state to establish guidelines for setting child support awards and directed judges and other officials to ensure such awards follow established state guidelines unless there are extenuating circumstances. It also strengthened earlier wage withholding procedures, mandating that states provide for immediate wage withholding (without determining whether there is an arrearage) unless there is good cause not to require withholding or both parents agree in writing to an alternative arrangement. KEY ISSUES The act afforded states anq other jurisdictions considerable discretion in creating guidelines. All jurisdictions, however, basically faced the same issues. Among those of greatest interest to CPAs are: 1. Whose income and needs should be taken into account when establishing child support awards? 2. What definition of income should be used in calculating the award? 3. How should special circumstances, such as shared or split custody, visitation time, multiple families, extraordinary expenses and medical insurance, be taken into account? 4. How should voluntary or stipulated agreements not conforming to the guidelines be handled? WHOSE INCOME?. There are four basic models of child support guidelines on whose income and needs should be considered in establishing a child support award: income shares, fixed percentage of noncustodial income, varying percentage of noncustodial income and Melson Delaware. Income shares model. The most widely used model is income shares, which has two fundamental assumptions: 1. The support should be based on both parents' combined income. 2. The child should receive the same proportion of parental income that he or she would receive if the parents lived together. Percentage of income models. Both fixed and varying percentage of noncustodial income models assume the custodial parent's income already is used for child support and the child should receive support from the noncustodial parent. The fixed percentage model calculates the award as a fixed percentage, determined by the number of children covered, of the noncustodial parent's income. The varying percentage model alters the percentage according to the noncustodial parent's income level. Calculations for these models are considerably less burdensome than for the income shares model. Some jurisdictions even include tables in their guidelines to facilitate computation of award determinations. Melson Delaware model. This model, developed by Judge Edward F. Melson in the Delaware family court in 1979, incorporates the estimated cost of raising a child, plus a minimum reserve for the parents, into a relatively complicated formula. A primary support obligation is calculated and then allocated between the parents on the basis of their net incomes. Exhibit 1, below, shows which jurisdictions use each model. …