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  The Math of the 2006 Interest Laws

The Math of the 2006 Interest Laws

Donald E. Ray, Law Offices of Donald E. Ray, Rockford

A new client has retained you to represent her in defense of allegations that she owes for past due child support. You are able to gather from your discussion that in the last five years she was divorced, child support was modified two years ago and in addition to the allegations of past due child support the opposing party has filed a motion forty five days ago to modify current support. For purposes of this article we will assume the Illinois Department of Health and Family Services, formerly Illinois Department of Public Aid has not been granted leave to intervene.

As you begin to ponder you recall that over the last few years there have been some changes to the statute on interest and you recall reviewing the recent case IRMO Thompson, http://www.state.il.us/court/Opinions/AppellateCourt/2005/2ndDistrict/May/Html/2040236.htm, Appellate docket number 2-04-0236.

Though this case and others dabbled in the area of past due support nothing really explained how to do the nuts and bolts of interest calculations. Upon further research you determine that the laws as they stand appear to all change come January 1, 2006., see the legislative history and text of affected statutes at http://www.ilga.gov/legislation/billstatus.asp?DocNum=0452&GAID=8&GA=94&DocTypeID=SB&LegID=17238&SessionID=50.

After a quick once over of the explanation on the General Assembly website and a once over of the new laws, you think that you must have missed something so you read it again and again?.

Your conclusion is that these new laws are clearly a substantial change from the old laws and determining an accurate answer to argue to the court is not going to be easy at all. This article will provide you with an introduction as to the major changes in the laws, what absolutes to follow, and what pitfalls to avoid.

Major Points of the New Laws

The specific laws that were changed as it relates to child support interest are as follows: 305 ILCS 5/10-16.5, 735 ILCS 5/12-109, 750 ILCS 28/15, and 750 ILCS 5/505. In addition 305 ILCS 5/10-1, 750 ILCS 16/20, 750 ILCS 16/23, and 750 ILCS 45/20.7, have the same changes as 5/505 but are merely different acts with the same sections. In terms of what has changed and in order of importance are as follows: Arrearages must include the amount of interest owed, no more 30 day grace period on each payment due, interest accrues monthly based upon the amount of the Unpaid Child Support Balance, payments made within a month are first applied to the amount of current support owed that month, and now maintenance and retroactive child support are subject to these same rules see http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=094-0089.

The key to this new process of determining a child support arrearage is to be able to establish what the Unpaid Child Support Balance is for each month where child support was ordered. Briefly there are three groups of calculated results that you need to arrive at for each month, a)how much is ordered to be paid in any given month for current support, b)how much was paid in that month, and then c) the interest owed for the month. These will produce three separate results for each month, the Monthly Current Support Balance, the Unpaid Child Support Balance, and the Interest Balance.

RULE 1 Monthly Current Support Balance (MCSB) = Monthly Current Support (MCS) less payments made in that month not including tax intercepts. The MCS will only be $0.00 if the obligor was not ordered to pay current support that month. The MCSB will only be $0.00 if all current support owed for that month is received in that month.

RULE 2 Unpaid Child Support Balance (UCSB) is equal to all the individual Monthly Current Support Balances (MCSB). If each month the amount owed for current support is paid the MCSB will be $0.00 and the UCSB will be $0.00.

Determining and Setting Monthly Child Support

First you need to determine what the child support orders have been and the dates these amounts changed to ascertain the current child support obligation for each month. The amounts owed each month will not always be the same in that some months there are more pay periods if support is ordered on a weekly basis or bi weekly basis. In addition it is rare that a support order commences on the first day of the month, thus in a month where current support was modified, the monthly current support obligation will likely not be the same as the month before the modification as well as the month thereafter. As an example suppose there are three consecutive months with four Fridays in each. If support in the first several weeks is set at $100.00, but modified to $135.00 per week commencing the second Friday of month two, the amount owed for current support in these three months would be $400.00, $505.00 and $540.00 respectively. As a side note to be discussed in more detail later the new laws require that a retroactive increase is subject to the accrual of interest.

In that you can see how important it is to determine the actual amount owed each month it is just as imperative that attorneys who represent obligors must enter support orders that reflect their client?s specific pay period. This is due to the fact that the monthly child support obligation will be based upon what is actually ordered to be paid, not the weekly amount times 4.33 as customarily used. As an example ? the obligor?s net income is determined to be $500.00 per week but is actually paid bi-weekly every other Friday. The court order is set at $100.00 per week commencing January 13, 2006. Under this scenario the obligor will owe $400.00 most months but some months such as March 2006 the obligor will owe $500.00 because March will have five Friday weekly pay periods. If the obligor is paid on the 10th and the 24th causing the employer to only send two payments of $200.00 each the obligor will be short $100.00 for March creating an Monthly Child Support Balance. Unless the obligor sends a voluntary overpayment in April there will be an Unpaid Child Support Balance which will incur interest. This penalty will occur at no fault of the obligor and furthermore a problem for you.

Monthly Child Support Balance

Assuming you have determined what should have been paid for each month the next step is to figure out what amount remains unsatisfied for each of those months based upon the payments that were made in that month. As stated above a month where no payments are made the MCSB will be the same as the MCS owed that month. The MCSB is established at the end of the month and can range from $0.00 up to the MCS owed for that individual month. Example ? If the obligor owes $500.00 for MCS and pays $200.00 on the first day of the month even where he intends/wishes that $100.00 is to be applied to interest or a previous stricken arrearage the entire $200.00 is all applied to the MCS, the current child support owed that month, $500.00. If no further payments are received the amount owed for current support that month, the MCSB will be $300.00. This application process must be followed even where the obligor makes an arrearage payment or such is withheld by the employer as ordered by a judge. Both court ordered payments for current support and arrearage are applied to the MCS until the MCS is paid in full. Payments thereafter will be applied to the Unpaid Child Support Balance.

Unpaid Child Support Balance

In the next step you need some additional skills. Every month where the MCSB is greater than $0.00 you need to keep this monthly amount distinct from the others and at the same time determine the sum amount of these months where support is owed, called the Unpaid Child Support Balance (UCSB). The Unpaid Child Support Balance is a key component of the new laws. By example, if the MCS obligation was $400.00 for a period of thirteen months (recall that not all months are likely to be the same) and no payments were made, the MCSB for each would be $400.00 and the Unpaid Child Support Balance would be $5,200.00. As a crucial note it is paramount that your Unpaid Child Support Balance includes no interest. This in turn means that the Unpaid Child Support Balance is never equal to the arrearage, in that by definition the arrearage now must include the interest owed.

Interest Accrues From the Unpaid Child Support Balance

For each month where an Unpaid Child Support Balance exists interest will accrue. Thus just as there may be months where there exists an Unpaid Child Support Balance, you will have an multiple months of interest that have accrued. For purposes of striking an arrearage, the interest owed will be the collective amount of every month where interest accrued.

The new laws require that interest accrue on a monthly basis as opposed to a yearly basis thus the Unpaid Child Support Balance does not accrue interest by simply applying such by 9%. The annual rate of interest at this time is 9%, pursuant to statute, (735 ILCS 5/2 1303), http://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=073500050HArt%2E+II+Pt%2E+13&ActID=2017&ChapAct=735%26nbsp%3BILCS%26nbsp%3B5%2F&ChapterID=56&ChapterName=CIVIL+PROCEDURE&SectionID=61947&SeqStart=15600&SeqEnd=16200&ActName=Code+of+Civil+Procedure%2E. Under the new laws we are required to use a monthly rate and not the annual rate. To arrive at the monthly rate, the annual rate, 0.09 is multiplied by one twelfth which produces the monthly rate of 0.0075. This rate will always be used in every case for every month as long as the statutory annual rate of 9% remains in effect. Hypothetically if the Unpaid Child Support Balance through the month of January 2006 is $362.00 the amount due in interest for just that month is $2.715. Technically this is the correct amount. However since the new laws do not state that you round up to the nearest dollar I suggest that you do, therefore the amount owed for interest on the Unpaid Child Support Balance in that one month is $2.72.

For those of you who are still convinced that you get the same end results by just multiplying the total amount owed in unsatisfied judgments by the annual rate review the following hypothetical. Let?s say your order is only twelve months old and the Unpaid Child Support Balance through month eleven is $4,800. If you apply 9%, the annual rate, such assumes that an entire year had elapsed from each of the payments due comprising the $4,800.00. However we know that the $400.00 due only a month ago has only lapsed thirty days, not 365. This is why you can not just take 9% of the collective Unpaid Child Support Balance to determine the interest and in turn strike an arrearage. You need to include in the process the amount of time that is elapsed for each month where the monthly current support was not paid.

Be careful not to multiply the monthly rate, 0.0075 to the amount that was not paid in January, the Monthly Child Support Balance. Interest does not accrue on the monthly amount unsatisfied, but on the amount that was owed for all previous months prior to that month less the payments made that month credited to the Unpaid Child Support Balance as existed before that month.

Where Did The Payment Go?

When applying a payment there are a few simple rules to follow, the process is the catch. As a general rule from now on every payment made by the obligor or monies collected to be applied on the arrearage/delinquency such as a state tax intercept or lien on a worker compensation settlement is counted as a payment received in that month and applied first to the monthly current support obligation. The major exception to this rule occurs when an obligor?s Federal tax refund is intercepted by the Illinois Department of Health and Family Services which I will discuss later. Now the twist, assuming that the monthly child support amount was satisfied the excess amount paid in that month is applied to the Unpaid Child Support Amount that existed at the beginning of the month. This application then produces a new Unpaid Child Support Balance which in turn interest accrues upon. If there are no payments made in excess of the monthly child support owed the Unpaid Child Support Balance will remain the same and the interest which accrued the prior month will be the same for the new month. If you followed that you passed the test.

For any month where the full current monthly support is not paid the deficiency will increase the Unpaid Child Support Balance at the end of the month but the interest that accrues remains the same as the previous month in that the Unpaid Child Support Balance for the previous month has not been reduced by any payment. The deficiency of the current month will be accounted for in next month?s accrual of interest. If you followed this then not only did you pass the exam you get an ?A?.

Therefore you should now be able to establish four results: 1) how much is owed for support each month, the Monthly Current Support, 2) the balance owed as determined at the end of the month, the Monthly Child Support Balance, 3) how the Unpaid Child Support Balance is produced then reduced or increased, and 4) how interest accrues each month.

Significant Changes of the New Laws

Assuming that you were able to properly determine the Unpaid Child Support Balance, each payment made exceeding the monthly child support owed will be counted as a dollar for dollar reduction of the Unpaid Child Support Balance. This treatment of the excess payment is a significant change in the law and to the benefit of the obligor. Since the case Scales v. McMahon, 364 Ill. Dec. 413 (1936) payments made to reduce any civil judgment have been applied first to the accrued interest then to the principal. The new child support laws flips this application and it is a benefit to the obligor in that the principal is reduced earlier thus directly reducing the accrual of interest which has the effect of dramatically reducing the amount an obligor owes on January 1, 2006 from the amount owed on December 31, 2005.

The laws pre 2006 required that interest would not accrue on a single unsatisfied judgment until such judgment remained unpaid for 30 days. Under the new laws a payment that is due Friday, January 27, 2006 must be considered received in the month of January and in the event such payment is not received in January but in February an unnecessary Monthly Child Support Balance will result. This in turn accrues interest whereas the obligor would not accrue interest if the 30 day grace period existed. Before anyone jumps to the conclusion that this is a good idea please consider that many noncustodial parents have child support withheld as required by law and that such payments need not even be mailed for seven business days. This scenario appears to lead to the formation of an Unpaid Child Support Balance which will not be reduced until there is a month where the obligor sends a overpayment which in turn is then applied to the Unpaid Child Support Balance. In addition interest, which is a penalty for not paying on time, will accrue every month until this is paid at no fault of the obligor.

Illustrations

As to the client and her situation you may now have a better grasp of what you will have to do. Below are examples of what your client would owe, if the she made no payments for just the year 2005, and another where a partial payment was made. For illustrative purposes each month the support owed is the same, in reality this is very unlikely as mentioned previously in that all months do not have the same amount of pay periods.

No Payments Made

 

MCS

Payments

MCSB

UCSB

UIB

Jan 05

433

0

433

433

$3.25

Feb 05

433

0

433

866

$6.50

Mar 05

433

0

433

1299

$9.74

April05

433

0

433

1732

$12.99

May 05

433

0

433

2165

$16.24

June 05

433

0

433

2598

$19.49

July 05

433

0

433

3031

$22.73

Aug 05

433

0

433

3464

$25.98

Sep 05

433

0

433

3897

$29.23

Oct 05

433

0

433

4330

$32.48

Nov 05

433

0

433

4763

$35.72

Dec 05

433

0

433

5196

$38.97

 

 

 

5196

 

$253.31

Single Payment Made

 

MCS

Payments

MCSB

UCSB

UIB

Jan 05

433

0

433

433

$3.25

Feb 05

433

0

433

866

$6.50

Mar 05

433

0

433

1299

$9.74

Apr 05

433

0

433

1732

$12.99

May 05

433

0

433

2165

$16.24

Jun 05

433

0

433

2598

$19.49

Jul 05

433

233

200

2798

$20.99

Aug 05

433

0

433

3231

$24.23

Sep 05

433

0

433

3664

$27.48

Oct 05

433

0

433

4097

$30.73

Nov 05

433

0

433

4530

$33.98

Dec 05

433

0

433

4963

$37.22

 

 

 

4963

 

$242.82

Federal Tax Intercept ? A Lack of Direction

For those of you who have not had the time to follow the details of how these laws came about it is important to know that the changes were made based upon interpretations of Federal Laws that relate to child support nationwide. Of the many laws that exist under the Federal System, there are laws which establish that a Federal tax refund which is intercepted by a state for the purpose of reducing a child support arrearage or delinquency is not to be applied under the same process as a voluntary or court ordered support payment. Even with all the Federal rules coupled together in conjunction to existing Illinois Administrative Code and new interest laws, there is no explanation as to what constitutes the amount being withheld, nor at what point in time is the intercepted amount applied to a month in the cycle of the Unpaid Child Support Balance. Pursuant to current law at 89 Illinois Administrative Code 160.70 (c)(10), http://www.ilga.gov/commission/jcar/admincode/089/089001600D00700R.html. The code makes no reference to an Unpaid Child Support Balance. The code does assert that the state can only intercept the amount which is listed in the Notice informing the obligor of the intent to collect. This would be helpful if the new laws let us know how the state will come up with the amount listed in the Notice so that we can apply the such collected amount to the proper period of time. Such proper allocation has a direct effect on the accrual of interest.

The new interest laws require that the refund withheld is to be applied to the Unpaid Child Support Balance, and specifically state that it is not applied in the month it is received. With these two premises in mind at what point in time we do apply this amount to the Unpaid Child Support Balance? Do we apply the amount in the month of the date the obligor was notified that such intercept has in fact occurred, the date the funds were transferred to the State of Illinois or the date the Illinois Department of Healthcare and Family Services enters such into their system.

Other Pitfalls of the New Laws

The new laws do not specifically state which date is to be considered the date of collection for purposes of determining the date payments are applied to any given month. The Federal rules, 45 CFR 302.51(4(ii)), http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=769ea2c235258f018b375d8d0e83358b&rgn=div8&view=text&node=45:2.1.2.1.3.0.1.24&idno=45, list that a state can choose to use either the date the pay period it was withheld or the date the payment is received by a state agency if such funds are withheld but received in the following month. As of December 5, 2005 the Illinois Department of Healthcare and Family Services pursuant to the Freedom of Information Act request, has responded that no such documents exist which declare which date are state will use. The Income Withholding for Support Act, 750 ILCS 28/35, http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2093&ChapAct=750%26nbsp%3BILCS%26nbsp%3B28%2F&ChapterID=59&ChapterName=FAMILIES&ActName=Income+Withholding+for+Support+Act%2E., requires employers/payors to provide to the State Disbursement Unit the pay period the funds sent were withheld from. After my inquiry the response from the Illinois Department of Healthcare and Family Services is that the State Disbursement Unit is not required under Federal law to provide that information so they will not list that date on their payment history sheets. If one is to base their calculations only upon the dates as listed in a State Disbursement Unit payroll history sheet or from any circuit clerk printout I have ever seen, their calculations may be entirely wrong if the date to be used is the date the funds are withheld as opposed to the date recorded in the system as being received.

As stated previously retroactive child support is also entitled to interest. Unless the obligor begins paying a higher amount anticipating an increase of current support pending a court determination, an Unpaid Child Support Balance will result because of the retroactive increase and in turn create interest owed. With this in mind there is no way you can be ready for a hearing in which the court wishes to hear evidence on the modification of current support and the arrearage in that you can not determine the arrearage until you know the amount of the retroactive increase which has a direct affect on the correlating accrual of interest.

In conclusion it is my opinion that these laws do provide a significant increase in detail as to how to calculate the amounts owed for child support and the interest, now called an arrearage. The drafters of these new support interest laws may have intended to create a simpler process for determining what is owed and how payments are to be credited however the results are far from it. The process of actually being able to determine an accurate answer as to how much is owed for child support requires much more than a sharp pencil.

Donald E. Ray has practiced in the areas of Child Support Enforcement, Child Support Employer Liability, IDPA Proceedings, and Divorce. He is a member of the Illinois State Bar Association Family Law Section, National Child Support Enforcement Association; and the Winnebago County Bar Association. He is the author of "The Application of Child Support, Interest-More Than Just a Sharp Pencil," published in the Illinois State Bar Association Family Law Journal, Vol. 46, No. 6 June, 2003. His reported cases include 347 IL Appellate 3rd p. 395 In Re Marriage of Smith (child support enforcement). He received his J.D. from Northern Illinois University. Contact Mr. Ray at One Court Place Suite 301, Rockford, IL.

 
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