Recently, the Pennsylvania Supreme Court in Hanrahan v. Bakker ruled that in a high income child support case, a court should consider the reasonable needs (expenses/lifestyle) of the children in making a child support award.
By way of background, father and mother (both attorneys), were married in 1992 and had two children. The parties divorced in July 2009. Prior to their divorce, they executed a marital settlement agreement which provided that each year they would exchange tax information in order to recalculate child support and each party’s proportionate payment of the children’s expenses based on the parties’ net incomes and the Pennsylvania Support Guidelines, provided, however, either party may apply to the Court to adjust child support and/or their share of the children’s expenses for the year based on relevant factors.
From May 1, 2010 through April 30, 2011, father’s monthly support payment was set at $15,878 which was calculated based on his 2009 income of $4,010,938, and Mother’s income of $183,635. From May 1, 2011 through April 30, 2012, father’s support payment was calculated to be $3,702 per month based on his 2010 income of $1,083,312 and Mother’s 2010 income of $138,988. From May 1, 2012 through April 30, 2013, father’s support payment was $7,851 per month, which was calculated using his 2011 income of $2,303,031 and Mother’s 2011 income of $145,593. In 2012, father’s income jumped to approximately $15,500,000 while Mother’s was approximately $105,000.
During the relevant time period, the support guidelines provided, in relevant part, as follows:
(a) Child Support Formula. When the parties’ combined monthly net income [CMNI] is above $30,000, the following three step process shall be applied to calculate the parties’ respective child support obligations. The amount of support calculated pursuant to this three-step process shall in no event be less than the amount of support that would have been awarded if the parties’ combined net monthly income were $30,000. That amount shall be the presumptive minimum.
(1) First, the following formula shall be applied as a preliminary analysis in calculating the amount of basic child support to be apportioned between the parties according to their respective incomes:
Two children: $3,777 + 8.0% of combined net income above $30,000 per month
(2) And second, the trier of fact shall apply Part II and Part III of the formula at Rule 1910.16-4 (a), making any applicable adjustments for substantial or shared custody pursuant to Rule 1910.16-4(c) and allocations of additional expenses pursuant to Rule 1910.16-6;
(3) Then third, the trier of fact shall consider the factors in Rule 1910.16-5 in making a final child support award and shall make findings of fact on the record or in writing. After considering all of the factors in Rule 1910.16-5, the trier of fact may adjust the amount calculated pursuant to subdivisions (1) and (2) above, upward or downward, subject to the presumptive minimum.
The deviation factors a court may consider in determining whether to adjust the support upward or downward, include (1) unusual needs and unusual fixed obligations; (2) other support obligations of the parties; (3) other income in the household; (4) ages of the children; (5) the relative assets and liabilities of the parties; (6) medical expenses not covered by insurance; (7) standard of living of the parties and their children; (8) in a spousal support or alimony pendente lite case, the duration of the marriage from the date of marriage to the date of final separation; and (9) other relevant and appropriate factors, including the best interest of the child or children.
Based on the formula above, father would have owed mother approximately $60,000 per month in child support, which father believed was way in excess of the children’s actual expenses. Therefore, he wrote mother a letter as follows:
As we discussed, I was fortunate enough to make a substantial amount of money last year. Based on this income, the preliminary calculation that is the first step in the child support determination in high income cases will yield a result that is way beyond any realistic estimate of the reasonable needs of the children. In the past, you and your counsel have insisted on using the preliminary calculation.
Rather than pay a child support order of approximately $60,000 a month, he continued to pay $7,851 per month which is what he had been paying for the prior year. Mother then filed a Petition to Enforce the marital settlement agreement. The trial court rejected father’s argument that the court was required to conduct an analysis of the reasonable needs of the children in applying the high income guidelines and that such an analysis had been removed from the child support guidelines. Father appealed this issue to the Pennsylvania Superior Court which affirmed the decision. The Pennsylvania Supreme Court granted allowance of appeal.
The Supreme Court held that a child’s reasonable needs are relevant in a high income support case as they can form the basis to deviate from the amount of support determined by the formula because of “other support obligations of the parties”, “ages of the children”, “the standard of living of the parties and their children” and “other relevant and appropriate factors, including the best interest of the children.” The Supreme Court stated that a discrete consideration of children’s reasonable needs is necessary in high income cases given the lack of economic data establishing children’s needs in these cases. There is economic data supporting the child support guideline numbers for income levels below $30,000 per month but not over that threshold. As a result, in high income cases based solely on the formula, the result is a support award that is “only theoretically, not actually, tied to the reasonable needs of children living in high income households in that it is not tethered to evidence-based economic data.” This often results in the transfer of significant wealth from the higher earning spouse to the lower earning spouse resulting in a windfall.
As a practice pointer, if you are involved in a support matter and the combined net monthly income of you and the other parent is over $30,000 net per month, you will need to fill out a detailed expense statement allocating your monthly expenses between you and your children and be prepared to testify to each of the expenses and provide support for them. A court will decide whether your expenses are “reasonable” in light of the lifestyle during your relationship with the other parent and whether those expenses justify a deviation from the amount of support calculated pursuant to the formula. It will be interesting to see how this decision plays out in the courts and at what “threshold of income” over $30,000 per month reasonable needs will really be relevant.