Securing Future Child Support Obligations, 0122 COBJ, Vol. 51, No. 1 Pg. 38
| Author | BY BAILEY W. MAHONEY, EMMA A. FLETCHER, AND JONATHAN F. HASKELL |
| Position | Vol. 51, 1 [Page 38] |
FAMILY LAW
Securing Future Child Support Obligations
BY BAILEY W. MAHONEY, EMMA A. FLETCHER, AND JONATHAN F. HASKELL
This article considers how to protect child support payments for children who outlive an obligor parent.
In Colorado, child support obligations terminate when a child emancipates but not when a parent dies;1 the obligation to pay child support for unemancipated children outlives the deceased parent. But it also leaves the surviving parent with the quandary of how to collect child support from a nonexistent obligor. This article discusses proactive measures that child support obligees can take to protect child support payments in the event the obligor dies during a child's minority.
Practical Matters
If the obligor parent dies before a child emancipates, child support may be "modified, revoked, or commuted to a lump-sum payment, to the extent just and appropriate in the circumstances."2 This tasks the surviving obligee parent with determining how much support remains owing and how to actually collect this support. To address this financial uncertainty, parents typically agree for, or have the court order, the obligor to maintain security representing the lump sum of the unpaid future child support amount in case he or she dies before the child emancipates.3 This practice aims to (1) predetermine the support amount owed and (2) identify a source of payment for the support owed.
Securing Child Support
In addition to enforcement methods prescribed by statute or the Colorado Rules of Civil Procedure, courts may require security to ensure enforcement of their orders.[4] An interested party may apply to the court for an order requiring an obligor to post security, a bond, or other form of guaranty to secure payment of child support.5 Life insurance, assets, and wills may be used to guarantee child support obligations.
Life Insurance
Practitioners and courts typically use life insurance to secure support obligations, and for good reason.6 Once a child support obligation is commenced, its term can be estimated based on the child's age. Thus, term life insurance can be purchased for a term comparable to the obligation. Parents can also select a policy with a face value comparable to the obligation. This flexibility allows obligors to obtain security commensurate with their needs. The recipient parent further benefits because the life insurance policy proceeds are generally tax-free. Moreover, parents frequently have preexisting life insurance policies that they can use for this security.
However, life insurance may not be a feasible option for obligors who are older or have preexisting medical problems and cannot qualify for a new life insurance policy. And depending on a person's income, premium costs associated with obtaining sufficient life insurance coverage may be a barrier.
Assets
Existing assets offer another option to secure child support where the value is sufficient to insure the outstanding support obligation. Accounts with beneficiary designations, such as cash or cash equivalent accounts with a paid-on-death beneficiary designation, are useful in this regard.
Retirement accounts like a traditional IRA or 401(k) can also be used as support security. Obligors can use such an account's beneficiary designation to name the obligee as a beneficiary for an amount equivalent to their child support obligation. One wrinkle here is that federal Employee Retirement Income Security Act rules and similar rules under state retirement plans require a subsequent spouse to consent to this arrangement and sign a spousal waiver. The subsequent spouse may or may not be willing to do this.
Retirement accounts are generally the worst types of accounts to inherit because of early withdrawal restrictions and tax consequences. But there is often no better security option available, and significant value in retirement assets will likely be preserved even with the penalties and consequences surrounding early withdrawals. And having less than ideal security for a child support obligation is better than having no security at all. Accordingly, retirement assets should remain on the table when other options are limited, with the amount the obligor agrees to secure from retirement assets negotiated to make up for these assets' limitations.
Where There's a Will, There's a Way
Last but not least, parties can contract to make a will, which is another enforceable option.7 While fairly uncommon, some parties are able to agree in the separation agreement to contractually obligate one or both parties to either make a will or agree to not revoke a will that provides for a gift to be made upon the obligor's passing.
Calculating the Obligation
A Colorado child support obligation may be continually modified during the life of the obligation "upon a showing of changed circumstances that are substantial and continuing," so long as the modification results in at least a 10% change to the amount of the underlying obligation.8 And a child's emancipation for purposes of child support is not always limited to the child achieving the age of 19.9 Given the dynamic nature of child support obligations, calculating the future, unpaid lump-sum amount of an obligation that could be further modified can be tricky.
The frustrating reality is that a child support obligation remains unliquidated because future circumstances are simply unpredictable. The best way to combat this uncertainly is to make an educated guess and allow the obligor remedies to adjust the security based on unforeseen future changes.
To begin, simply multiply the existing monthly obligation by the number of months until the first child turns 19 years old. Then calculate each additional child's support obligation with the same inputs as for the first child (gross incomes, overnight visits, insurance premiums, etc.), multiply the resulting obligations by the number of months until the child(ren) turns 19, and add the obligations. This rough calculation covers support for all children if the parents' current circumstances were to remain static for the remainder of the obligation's term and may serve as a starting point for the amount of security. The obligor may benefit from a "cap" on the security amount in case his or her obligation increases in the future. A cap may be especially useful if the obligor anticipates that increasing the amount of security in the future will be practically impossible or prohibitively expensive.
Present Value Discounts
A dollar is generally worth more today than tomorrow, so practitioners should consider present value discounts when negotiating a security amount. Child support is intended to be paid in installments over the period of a child's...
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