The intersection of F.S. 55.03 and Florida family law: statutory interest calculations for past-due support payments.

• Author: Reiss, Jerry
• Position: Florida Statutes

A change to F.S. [section]55.03 in 2011, when viewed in light of its application to a common issue in family law, essentially converted what was once a two-way stop on two intersecting country roads to a new six-way city intersection, complete with traffic signals.

The History of F.S. [section]55.03: Calculation of Statutory Interest

Calculating the amount of statutory interest (1) applicable to court-imposed judgments (2) used to be a relatively straightforward calculation before F.S. [section]55.03 was changed in 2011. Prior to the law's modification, to calculate the amount of interest owed on a judgment, one would apply the daily interest rate for the number of days beginning with the date of entitlement and ending with the date of payment. (3) Complications arose only in leap years and were easily dealt with by the daily rate being reduced to reflect the extra day for the calculation covering the leap year.

The relatively simple calculation became complicated after Laws of Florida Ch. 2011-169 (4) amended F.S. [section]55.03. Under the revised [section]55.03, the interest rate is recalculated on a quarterly basis. (5) For judgments, one uses the daily rate for the quarter in effect at the time a judgment is entered and that rate will apply until the judgment is paid or until the end of the calendar year, whichever is sooner, irrespective of any interest rate changes for a subsequent quarter in that year. (6) The interest rate is then adjusted annually on January 1 of each following year. The new interest rate is based on the rate in effect as of January 1. (7) This annual interest rate adjustment applies to the majority of judgments, with only a few exceptions not relevant to this article. (8) This new interest rate recalculation for judgments became applicable to all unsatisfied judgments when the revised F.S. [section]55.03 went into effect on July 1, 2011. (9)

Application of F.S. [section]55.03 to Support Arrearages

Calculating the amount of statutory interest applicable to judgments for support arrearages (10) was never entirely simple, even prior to the amendment of [section]55.03, because each support payment missed is treated like a simple judgment with simple interest (11) applied to each missed payment. (12) Therefore, if there were 96 monthly payments past due, each past-due payment required an interest calculation, each of which required more than a few minutes to perform. Afterwards, the 96 results had to be summed.

Now that F.S. [section]55.03 has been revised to require the recalculation of the statutory interest rate on a quarterly basis and recalculation of the interest rates on judgments annually as of January 1 of each year following entry of the judgment, a logistical nightmare is presented for the family law practitioner, especially considering the impact that the leap year has on the process.

Underlying Concepts for Calculation of Statutory Interest on Support Arrearages

If one treats each month as having the same number of days, the second missed payment has one month less interest than the preceding one, the third missed payment has two months less interest, and so forth. Considering the concept from an algebraic perspective, the number of missed payments (n) and the number of months of interest on all such payments can be aggregated and expressed as (n)(n+1)/2. (13) As all missed payments are the same, the formula amount (n)(n+1)/2 can be multiplied by a single payment (P) and the monthly interest rate to determine the total interest on all payments for that year. For purposes of this simplified discussion, the monthly interest rate is the annual simple-interest rate divided by 12. Just because months have a differing number of days does not mean that the entire process of calculations cannot be simplified with a different formula, as will be demonstrated later.

Interest calculation on each missed payment can be broken down between the simple interest earned for the first year and each full year's interest for all subsequent years that follow, plus the final year's interest to the valuation date. As demonstrated in introductory algebra classes, addition has associative properties. (14) Therefore, all the payments of each year can be summed for the first year the interest is applied. After each year of missed payments, the total amount for that previous year is due on January 1 and the simple interest is applied to the full amount in the exact same way that interest applies to a single judgment amount. The final payments present a third classification of calculations because the final payments involve a partial year, like the first year but with a different valuation date.

This process can be confusing; however, it can be streamlined by following four simple steps which employ tables A and B. The four-step process and accompanying tables will be explained in detail below. (15) For the sake of clarity, two examples will be provided following the explanation. Then, this article will conclude with a mathematical proof of tables A and B.

Steps Used to Calculate Statutory Interest on Support Arrearages

* Step One: Payments during the First Year (Table A)--After entry of a judgment awarding support arrearages, the first year's interest applicable to the new payments is determined by using table A below. Arrearage payments missed in each new calendar year require a first-year interest calculation using table A. Add all such first-year missed payment interest calculations.

As the interest rate now changes quarterly, care must be exercised in years with differing interest rates for each quarter. (16) A new missed payment applies the quarterly rate in effect at the time the payment was missed. A missed payment in one quarter can have a different interest rate applied than the payments missed in other quarters in that same year. With the quarterly recalculation of statutory interest rates, it is possible to have four different interest rates apply to the payments missed in any given year. When the interest rate changes during a given year, the interest rate for each missed payment will have to be calculated separately based on the quarter in which the payment was missed. For example, the first three quarters in 2011 had an interest rate of 6 percent and the final quarter had interest rate of 4.75 percent. As a result, any support arrearage payments falling due in 2011 would have two separate interest rate calculations depending on the quarter in which they were missed. Any payments missed during the first nine months would apply a daily interest rate equivalent for 6 percent per annum and those missed in the final three months would apply a daily rate equivalent for 4.75 percent per annum.

* Step Two: Accrual of Interest during Subsequent Years on Amounts Due and Owing from Prior Years--Step one involved interest calculations for each missed payment in the first year. The balance for each of the missed support payments identified in step one is aggregated for the previous year and due on the following January 1. The amount due accrues interest at the rate established when the payments first came due and continues accruing at that rate until December 31, 2011. (17) As the new interest rate applies to judgments before July 1, 2011, and after July 1, 2011, alike, the new rate of 4.75 percent applies to all missed payments after December 31, 2011, for 2012, and as the rate is the same on January 1, 2013, for all of 2013, as well. This would be equally true if one were to regroup the interest on the missed payments into step...