The “Basic” CS Formula Roger F. Gay July, 2005 Project for the Improvement of Child Support Litigation Technology Part 2 The “Basic” CS Formula July, 2005.

The “Basic” CS Formula Roger F. Gay July, 2005

Project for the Improvement of Child Support Litigation Technology

Part 2The “Basic” CS Formula

July, 2005

Copyright © 2005 Roger F. Gay All Rights Reserved

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Project for the Improvement of Child Support Litigation Technology (PICSLT) is an R&D project that focuses on the science, engineering, and application of child support guidelines.

PURPOSE


Child Support Decision Theory

This tutorial presents the “basic” child support calculation.

Other tutorials will present deviations and “additional support” calculations (for day-care for example), visitation credits and joint custody calculations, multiple-family calculations, and “cost” tables.


“Basic” Support Calculation

The Child Support Decision Theory (CSDT) presented in this tutorial provides an explicit solution to the standard of living adjustment problem.

We therefore have no need of “magic” numeric table values to increase standard of living arbitrarily. Support is concomitant with parents’ ability to provide.


Advocates of reform complained that traditional child support awards were “inadequate.” Supporting evidence was based on a single example using their estimate of average incomes for men and women.

An Initial Issue


The argument contends that women (on average) have income near poverty, men (on average) receive around twice as much, and that support awards were inadequate for children’s needs.

What rule tells us that support awards must be adequate? (next slide)

Inadequate Awards


Pennsylvania Supreme Court: Melzer v. Witsberger, 505 Pa. 462; 480 A.2d 991 (1984)

Support, as every other duty encompassed in the role of parenthood, is the equal responsibility of both mother and father. Both must be required to discharge the obligation in accordance with their capacity and ability.

Every parent has a duty to support his or her minor children in accordance with the parents'respective abilities to pay.


Income verses Ability to Pay

Note: Actual subsistence needs vary with region and family circumstances. Numbers used in examples are for illustration purposes only. No attempt is made in this section to accurately estimate specific needs.


ncp incomeCS Share = ---------------------------------------- (ncp income) + (cp income)

Example:

$30,000 2 --------------------------- = --- = 0.67 $30,000 + $15,000 3

Using IncomeAs In the Marriage of Smith, Or 626 P2d 342 (1981)


“the burden on the one paying support should not be so heavy as to preclude the ability to support oneself and one's other dependents”

For example, in Hockema v. Hockema, 18 Or. App. 273, 524 P.2d 1238 (1974)

(Forcing starvation of a parent is illegal, immoral, and counter-productive.)

Basic Rule


Ability to Pay (ap)

Both Parents Need to Support Themselves

ncpap = (ncp income) – (self support)cpap = (cp income) – (self support)

ncpap NCPrap = ------------------ ncpap + cpap

NCPrap = NCP’s Relative Ability to Pay


Ability to Pay (ap)

Both Parents Need to Support Themselves

Same Example:

($30,000 - $15,000) ---------------------------------------------------------- ($30,000 - $15,000) + ($15,000 - $15,000)

= 1.00


Assuring Adequacy

By properly accounting for the self support requirements of parents, the amount of child support ordered in the example increases.

Assuming that cp income is near poverty level and ncp income is sufficient to support their children, the ncp pays 100 percent rather than 67 percent.

100 percent must be “adequate.”


Assuring Adequacy

The use of anything other than ability to pay (including income) to determine proportional obligations produces inappropriate results.

Why would a parent with no ability to provide be legally obligated to provide one third when the parents’ combined ability is sufficient?

Using income to calculate proportional obligation misrepresents ability to provide.


When a parent’s income is insufficient for self support, ability to pay is zero. For the purpose of this calculation, it is never less than zero.

Providing support for a former spouse is known as alimony or spousal support. It is not child support.

An equation for calculating spousal and child support in proper proportions is given in:New Equations for Calculating Child Support and Spousal Maintenance With Discussion on Child Support Guidelineshttp://www.geocities.com/capitolhill/5910/new-equations.html


Sensitivity

Self support has less effect on proportions when both parents’ incomes are high.

High sensitivity when at least one parent has low income.

Reflects the reality that changes in self support and income have a greater impact on low income households.


Consistency

Equal ability to pay yields equal proportions.

A parent with no ability to provide has no legal obligation to provide (within the scope of calculating routine child support orders).

Parents receive equal treatment even though their contributions may be very unequal.


CS Decision Principles

(1) Child support is for the care and maintenance of children.

(2) Both parents have an equal duty to support their children.

(3) All relevant circumstantial information may effect the amount of the award.


PICSLT CS Principle #2:Both parents have an equal duty to support their children.

The equal duty principle is not just a good idea. There is no valid excuse for introducing bias / unequal treatment. Differences in legal obligations must be supported by actual differences in circumstances.

Science: Arbitrary bias does not yield a valid solution.


Actual differences in circumstances are the subject of the context principle.

PICSLT CS Principle #3:All relevant circumstantial information may effect the amount of the award.

Science: No arbitrary restrictions. The circumstances that effect the amount of the award must be “relevant.”


We must deal with circumstances that are relevant to the distribution / allocation problem.

Circumstances must be accounted for in a way that does not violate the other principles.

Arbitrarily high child support awards effect the distribution of parental resources in a way that violates the other principles.


Standard of Living Adjustment

Current Thinking:

Guidelines are “designed to sustain the child at a standard of living concomitant with her divorcing parents' income. The measure of that standard is subjective.”

P.O.P.S. v. GARDNER, 998 F.2d 764 (9th Cir. 1993)



The standard of living adjustment problem did not have a theoretical solution until 1994.

It’s one of those problems like Einstein’s relativity. The answer isn’t so hard to find if you really understand the question.

Einstein spent a long time understanding the question. His revolution in physics was initiated with equations not much different from those that existed before.



The revolution that is needed with respect to child support calculations is a shift from politically driven statistics that have no basis in reality to an objective analytical basis for child support awards.

To do that, we need a theoretical solution to the standard of living adjustment problem.



Child support is not merely for meeting children’s subsistence needs or for the recovery of welfare entitlements.

Child support is for the “actual, necessary” (Smith) needs of children, including some “comforts and luxuries of life” (Smith) “in accordance with the parents' respective abilities to pay.” (Melzer)



The child support payment is not limited to support at the level a cp can afford on her own.

The payment provides a standard of living increase such that children benefit from the ability of both parents to provide, not just one.

Solving the standard of living adjustment problem means finding the appropriate increase without violating the principles.



One method of increasing custodial household standard of living is through the award of spousal support, which can be ordered separately when appropriate, but should never be included or hidden in a child support award.

Child support is limited to child support.



The solution involves an economic concept that is so obvious that it tends to confuse people.

Child support money is not magic. It’s just money. The only direct effect that payment of child support to a parent can have is to increase the income of that parent. We assume, normally, that increasing the parent’s income “increases the standard of living” of that parent’s household, which includes an increase in spending on children.



The economic effect of payment of child support by one parent to another is an increase in the standard of living of the recipient’s household and a decrease in the standard of living of the payer’s.

We only know whether the amount is appropriate by looking at the result. Payment of any amount increases the recipient’s income. But in theory, for any specific set of circumstances, only one amount obeys the principles. (The solution is “unique.”)



The solution is easy to conceptualize so long as you obey the rules.

Simply imagine a mother who has been receiving regular child support payments for a couple of years. The child support payment is providing a higher standard of living.

Is the payment in proper proportion to what is spent on children at this higher standard of living?



Trying to derive the formula for cs that increases a custodial parent’s income to the appropriate level looks like a puzzle.

Predicted spending at the cp’s initial income level is not the result of interest. We need to predict spending when income includes cs.

It’s as if you have to know the answer to find the answer. (Advanced high school algebra.)


CPi = Recipient’s Net IncomeNCPrap = Payer’s Relative Ability to PayD = Fraction of CP’s income spent on child (for “basic” spending, not including “additional costs” such as day care)

NCPrap x D x CPi

CS = -------------------------- 1 – (NCPrap x D)

New Equations for Calculating Child Support and Spousal Maintenance With Discussion on Child Support Guidelineshttp://www.geocities.com/capitolhill/5910/new-equations.html


Numerator: NCPrap x (D x Cpi)

Payer's Relative Ability to pay times what we predict the CP would spend on children on her own.

Denominator: 1 – (NCPrap x D)

Guaranteed to be less than or equal to 1.

Values less than one increase the basic child support amount. This is the standard of living adjustment that is concomitant with the parents’ ability to provide.


Example (numbers are for illustration only): CPi = $2,250 per monthD = 0.20NCPi = $3,250 per monthSelf-Support = $1250 per month

CPap = $2,250 - $1250 = $1000NCPap = $3,250 - $1250 = $2000 $2,000 NCPrap = ----------------------- = 0.67 $2,000 + $1,000


0.67 x 0.20 x $2,250 $300.00 ------------------------------ = ----------- = $346.15 1 – (0.67 x 0.20) 0.867

SOL Adjustment to the award = ($346.15 - $300.00) = $46.15 per month

This is not the total SOL adjustment for the child. First, the solution is verified.


Compare to the solution concept:

CP’s new monthly income is:

CPi = $2,250 + $346.15 = $2,596.15 per month

Predicted spending on child at higher SOL:

(0.20 x $2,596.15) = $519.23 per month

NCP’s Share = 0.67 x $519.23 = $346.15

CS by formula = $346.15



Predicted spending on child at higher SOL:

(0.20 x $2,596.15) = $519.23 per month

Predicted spending on child by CP alone:

(0.20 x $2,250.00) = $450.00 per month

Child’s SOL increase = $69.23 per month

(0.20 x $346.15) = $69.23



The income in the custodial household increased by the amount of the child support award: $346.15 per month.

As a result, predicted spending on the child increased by $69.23 per month



The NCP’s share of the child’s SOL increase is (0.67 x $69.23 ) = $46.15; the amount of the SOL adjustment to the award.

This verifies the SOL adjustment solution.

The child’s SOL is concomitant with the ability of both parents’ to provide.


Because the actual economic role of a child support payment is to increase standard of living in the custodial household, the solution to the standard of living adjustment problem is the basic child support equation. We don’t need any magic.

Case-by-case information requirements are the same as they are now. The income of each parent is needed (unless you adjust ap for special circumstances).

The equation is still pretty simple; similar to the Melson formula used in Delaware.



At Low Income


When the parents’ combined ability to pay is insufficient.

NCP can pay ncpap

CP can pay cpap

(By definition of ability to pay.)


The denominator defines the standard of living adjustment. Note that the standard of living adjustment is highest when NCPrap and D are highest. That would typically occur with a low income custodial parent and a noncustodial parent who can afford to support children.

1 – (NCPrap x D)

NCPrap = Payer’s Relative Ability to PayD = Fraction of CP’s income spent on child (for “basic” spending, not including “additional costs” such as day care)


The basic formula can be used when the CP’s income is insufficient to support herself, but the NCP is capable of supporting their children. (See New Equations ... “Poverty and Welfare”.) But it is unnecessary. The answer is always the same.

A welfare dependent CP can only afford to support herself and children at subsistence level through supplemental support. The basic child support obligation is always subsistence level.

See next 2 slides before passing judgment.


The NCP’s obligation is to increase the child’s standard of living to subsistence level.

Additional support can be provided based on specific cost calculations, such as for day-care. Specific cost support can be applied to any specific appropriate costs that are not affordable with subsistence support. (Principle #3)


For an increase from subsistence level child support via the basic support calculation, the CP’s SOL would also need to be increased above subsistence level, by, for example, the award of spousal support.

But remember:“the burden on the one paying support should not be so heavy as to preclude the ability to support oneself and one's other dependents”

For example, in Hockema v. Hockema, 18 Or. App. 273, 524 P.2d 1238 (1974)


When the CP’s income is more than sufficient to support herself, and the parents’ combined ability is more than sufficient to support their children, the basic formula can be used.

When the CP’s income alone is insufficient for subsistence level child support, presume that the value of D is the same as at subsistence level; i.e. should be the highest amount. (~ 0.25)

As parental income increases, the SOL of both CP and children increases “concomitant with the divorcing parents income.”


At High Income




Remember what the Oregon Supreme Court observed in Smith. (Note: 1981)

“Once a parent's net monthly income is over approximately $2,000 per month, the needs of the children in reality do not increase in proportion to the increases in the parent’s ability to pay.”


Effect of SOL Increase on Child (1981)

0

0,2

0,4

0,6

0,8

1

1,2

6 12 18 24 30 36 42

Annual Household Income (thousands)

Eff

ect

Something Like This?


NCPrap x D x CPi

CS = ------------------------------ 1 – (NCPrap x D)

When (NCPrap x D) equals 0, the denominator equals 1, and the equation becomes:

CS = NCPrap x D x CPi

Child support is the NCP’s portion (NCPrap) of child cost (D x CPi ) – no SOL increase.



Example: Each parent takes home $250,000 per year. Custodial parent is remarried. Husband takes home $250,000 per year.

We’re waaaaay into the range where – w.r.t. the basic support amount – the child’s SOL is already maxed out. CS has no SOL increase effect.


We get this effect by limiting forced support for discretionary “comforts and luxuries.” Assume “reasonable” spending choices. Example:

NCPrap = 0.50, CPi = $250,000 per year, D = 0.04

0.50 x 0.04 x $20833.33/mo.

CS = ----------------------------------------- 1 – (0.50 x 0.04)

Denominator = 0.98

Denominator approaches 1 as CPi increases because D (0.04 in this example) approaches 0.



When parental income is very high, a court may still order an NCP to support additional “comforts and luxuries of life” beyond basic support, but it’s a different calculation.

Example: If a judge orders an NCP to contribute to an expensive education at a private grade school or high school, the calculation is the same as for day care – using the actual cost.

It is not part of the “basic” calculation.



We do not increase the amount arbitrarily, for no other reason than that “the NCP can afford it.”

Child support is limited to child support.


A basic support obligation is just that – basic. (“Basic” is NOT defined as subsistence. More later when numbers are presented.)

Additional support can be ordered for specific costs such as day-care or private school, and other costs not included in basic support.

Spousal support can be ordered separately, when appropriate, to be spent at CP’s discretion.


This is not the end of math and theory. PICSLT has also dealt with visitation credits, joint custody calculations, separate additional costs such as day care (etc.), multiple family arrangements, and more.

And beyond the theoretical arena with numbers and legal process.

The “Basic” CS Formula Roger F. Gay July, 2005 Project for the Improvement of Child Support Litigation Technology Part 2 The “Basic” CS Formula July, 2005.

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