§ 5.7 Child Support Claims and Limited Income Withholding Orders (“LIWOs”)

• Jurisdiction: Arizona

§ 5.7 – Child Support Claims and Limited Income Withholding Orders (“LIWOs”)

One of the newest frontiers in connection with third-party interests in Arizona are child support collections through “limited income withholding orders” (“LIWOs”). LIWOs are administrative remedies issued pursuant to A.R.S. § 25-505 by the Arizona Department of Economic Security (“ADES”), or by its agent, to collect child support arrearages.

a. The Scope of LIWOs

A “duty to pay [child] support does not exist unless a judgment, decree or order creates it.” E.g., Lamb v. Superior Court, 127 Ariz. 400, 402, 621 P.2d 906, 908 (1980). LIWOs are statutory mechanisms for ADES to administratively collect unpaid support arrearages created by a judgment, decree or order; LIWOs are not “liens.” That is, they are not “security interests,” they are akin to garnishment or attachment orders, but they still require an underlying debt or obligation to pay support.

In relevant part, § 25-505 provides ADES or its agent may issue LIWOs to any “payor or other holder of a . . . nonperiodic or lump sum payment that is owed or held for the benefit of an obligor” owing outstanding child support. A.R.S. § 25-505(A) (emphasis added). Although neither term is defined in the statute, Arizona courts have taken a broad view of the terms.

A “nonpediodic” payment is “a payment made once, or intermittently, but not ‘periodically’ or regularly.” See State ex rel. Department of Economic Security v. Torres, 245 Ariz. 554, 558 ¶ 13, 431 P.3d 1207, 1211 (App. 2018) (affirming enforcement of LIWO against gift deposited into an inmate’s trust account). A “lump sum payment” is “a payment made all at once, not in installments,” and includes “insurance settlements” or “personal injury awards.” Torres, 245 Ariz. at 558 ¶ 13, 431 P.3d at 1211; see also A.R.S. § 25-505(E).

The terms “payor” and “holder” are also not defined. But, the overall context of the statute suggests that a “payor” includes a tortfeasor or insurance company, and a “holder” includes an injured person’s personal injury attorney in possession or control of a “lump sum payment.”

Service of a LIWO upon a personal injury attorney in possession or control of a lump sum payment, as described below, would trigger ethical obligations under Rule 42, Ariz. R. Sup. Ct., E.R. 1.15. See infra § 9.2. Absent service of a LIWO, infra § 5.7(b)(i), a child support obligation is like a judgment creditor; it would not be a matured legal or equitable interest in the...