Imputation - what you need to know, Part 1

People file for child support modifications all the time, hoping to get an increase to help with the adjustment of rising prices, for just about everything, or a decrease, due to a change in income or job loss.  Whatever the reason for the petition, it’s rare to have both parties happy with the outcome.  And to top it off, just because you ask for child support to be increased doesn’t mean that will be the result – if the support formula recommends a decrease, so be it.  The same situation plays out if one party asks for support to be lowered – if the formula recommends an increase, there you have it.  Hard feelings don’t even begin to explain the reaction when that happens. 

 

Child support frustrations heighten when a party is imputed, or assigned potential income.  The support formula manual allows for imputation when a parent is “voluntarily unemployed or underemployed, or has an unexercised ability to earn.”  See Michigan Child Support Formula (MCSF) 2017 §2.01(G).  Basically, it boils down to the court being able to “pretend” that a parent makes a specific amount of money for the purposes of child support.  The parent doesn’t actually earn the money attributed to him, or he may earn a portion of it, but not as much as the total figure that is used to calculate support.

 

According to the MCSF Manual, imputation should not exceed 40 hours a week or include overtime/shift premiums.  If you are already working 35+ hours a week, imputation should not be utilized.  Not surprisingly, in order for the court to assign a party potential income, it must analyze a set of 11 factors (what would a court document be without factors anyway?).

 

The imputation “dos” and “don’ts” are found in the MCSF Manual, Section 2.01(G)(2)(a)-(k).  I will examine these factors in this article and the next – let’s begin!

 

The first factor requires the court to examine the past employment experience and work history of a party, to include why the person is no longer employed.  We all know people who just can’t keep a job, and it’s always someone else’s fault.  Well, if your ex was fired for showing up to work intoxicated for the third time, that’s a legitimate fact to consider for imputation, as it should be.  This factor makes the most sense – what did you do in the past and why aren’t you doing it anymore.  How much experience a person has at a particular job is also telling as to what they could realistically earn in the future.

 

The second factor focuses on educational background, training and skills.  In theory, the higher the degree, the more money can be made, right?  While that may not always be true (think of Bill Gates), in general, people with a doctorate degree have the potential to earn more than those with a high school diploma.

 

Next, the court must look at a party’s physical or mental disabilities that impact the “ability to work, or to obtain or maintain gainful employment.” MCSF Manual §2.01(G)(2)(c).  This is the factor that causes the most arguments at my hearings – inevitably, if one party professes to be disabled, the other is absolutely certain that it’s all a lie, because the disabled party can do x, y and z on a regular basis.  It’s at times hard for me determine the veracity of this type of testimony, in particular from individuals who represent themselves, and don’t know what type of documents to bring, or witnesses to call for the hearing.  When a party is receiving a disability benefit, it can quiet the questioning by the other side.

 

A court must also look at whether or not a person is available to work, not to include times where looking for work was impossible.  You can’t expect someone to be out pounding the pavement and handing in resumes if that same person was in the pokey or hospitalized.

 

The last two factors for this article concern the “local geographical area” – what are the job opportunities, going wages, and number of hours available around town?  For some areas that have been hit hard with job loss, it may be difficult to find a full-time job in that particular region, and not everyone can just pack up and relocate to a more profitable community.  Salaries are higher in areas with a higher cost of living, so that needs to be factored in as well.

 

Stay tuned for the factors finale in the next article.

2017 Michigan Child Support Formula Changes

Well, the “Redcoats” aren’t coming, but the 2017 Michigan Child Support Formula is!  Starting January 1, 2017, the new formula and its manual will take effect, along with some welcome and I’m sure, unwelcome, changes.  I would like to highlight the two topic changes that I personally think will cause the most noise (cheers and jeers) among practitioners and clients alike – retirement and health care.  

 

The biggest “BOO!” I see coming revolves around what a party contributes to his or her retirement.  Under the current manual (2013 edition), the court can take into account voluntary retirement contributions made by a party as a deduction for purposes of the child support formula.  This amount can be up to 5.5% of one’s gross income.  The 2017 formula eliminates this option, and only provides for mandatory or nondiscretionary retirement contributions.

 

Realistically, we all want to save for retirement, and in my opinion, the voluntary retirement contribution deduction was a good thing.  The court should consider that people need to support themselves in the future.  The 2013 formula provided for a cap of 5.5%, so if an individual contributed a substantial amount over 5.5%, anything above the 5.5% would not be considered.  Alas, the powers that be did not agree with (or ask) me. 

 

Another retirement change is that employer contributions to a person’s pension or retirement have been removed from what is considered income.  To be honest, I don’t know too many people that utilized that provision previously, so I doubt it will be missed.

 

Health insurance changes will likely generate the largest cheers from the crowd, with modifications to allow for credit for a party’s spouse who covers the children on his or her health insurance.  This just makes sense.  The manual states that “[t]he court may permit a parent to provide required coverage through alternative means, such as a spouse’s or other household member’s coverage or coverage provided by a nonparent-custodian…provided that a parent is required to purchase coverage immediately should the alternative coverage stop.”  (MCSF Manual §3.05(B)(3)).  The manual goes on to say, “If the parent provides insurance for the children-in-common using a spouse’s or household member’s benefits, consider amounts paid by the parent’s household as the parent’s premiums paid to insure the children.”  (MCSF Manual §3.05(C)(1)(c)). 

 

One of the biggest complaints I hear is that it’s not fair to ignore the cost a spouse pays to cover their step-children on his or her insurance.  And, that’s a legitimate complaint – the money is likely coming out of a marital pot, and there’s no reason to pretend that health insurance costs are cheap.  Consideration of the cost to provide for that insurance has also changed – the 2013 formula provided that parents had to cover their children on their insurance as long as it did not exceed 5% of their gross income to do so.  The 2017 formula, section 3.05(A), has increased that reasonable cost to not exceeding 6% of the providing parent’s income.

 

Also, a new deduction was added – the cost that a parent pays to provide him or herself with mandatory health care coverage.

 

The last health care change that I think is important to note is the annual ordinary medical cost.  This cost represents the dollar amount the payee has to pay each year prior to the payer’s requirement to contribute a percentage to unreimbursed health care costs for the minor children.  This also assumes that the payer is contributing an ordinary medical portion in his or her total child support cost each month.  The current numbers are:  $357 for 1 child; $715 for 2 children; $1,072 for 3 children; $1,430 for 4 children, and $1,787 for 5 or more children; with all of those amounts being per year.

 

For orders entered after the 2017 effective date, the new amounts are:  $403 for 1 child; $807 for 2 children; $1,210 for 3 children; $1,614 for 4 children, and $2,017 for 5 or more children, all per year.  While the numbers have jumped a decent amount, so has health care.  The average cost most parents spend out of pocket each year for their children’s health care is often much more than the amounts provided by the formula.

 

I will likely supplement this article down the road, once I’ve had the chance to fully utilize the new formula with actual cases.  I’m not a huge fan of change, so my Spidey senses are tingling with a whole new formula manual after 4 years.  Here’s to hoping it’s received and put into practice well!