Child Support Using A/B Expenses

BY STEVEN L. ABEL AND KENNETH NEUMANN

Using child support guidelines is not for everyone. An alternative that has been used a number of times in mediations done through the Center for Mediation & Training divides child-related expenses into two categories:

• A expenses — for regular, recurring expenses, and
• B expenses — for irregular, or non-recurring expenses.

In this method, the non-residential or non-custodial parent pays a fixed monthly amount for A expenses and a share of the B expenses. Actually the Child Support Standards Act in New York, and the guidelines of other states, do this, in part, by separating medical, educational and child care costs and having both parents share these proportionately based on their incomes.

In this article, we’ll explore some of the details of the arrangements we’ve worked out and talk about some of the pros and cons of A/B expense method versus regular child support.

A EXPENSES

First off, what are A expenses? In the agreements signed so far, A expenses have included:

• Rent / Mortgage payments
• Real estate taxes
• Utilities (gas, electric, oil, water, basic telephone, cable TV, cleaning service)
• Automobile expenses
• Food, including school lunch money
• Clothing (although sometimes a different arrangement may be made. Logically this should or could be a B expense, but we usually think of A expenses as basic food, shelter and clothing)
• Personal care (hairdresser, barber, cosmetics and health products, etc.)
• Entertainment and eating out that you do with the children
• Family trips, travel & vacations

B EXPENSES

Secondly, what are B expenses? These are usually expenses directly attributable only to the child rather than to the household and which are expected to change as time goes by, or which are only incurred occasionally or unpredictably. Again, some common examples are:

CHANGEABLE EXPENSES:

• Child care expenses, including baby-sitters and summer camp
• Nursery school, private school expenses
• Extracurricular activities, including lessons, clubs, scouting, and religious instruction (though the cost of synagogue or church “dues” is often not included)
• College (because of its importance and large cost is often handled separately from other B expenses as a C expense)
• Weekly allowance (though often not dealt with or assumed to be an A expense)

OCCASIONAL EXPENSES:

• School supplies and uniforms
• School trips
• Gifts to child’s friends
• Sporting goods and hobbies
• Toys and games

These are either handled as A or B expenses depending on how high they are likely to be for a particular child or how specific or “nit-picking” the parents are.

UNPREDICTABLE EXPENSES:

• Medical and dental including cost for covering the children
• Psychotherapy and tutoring

Some agreements have gone into extensive detail concerning the costs associated with a housekeeper (salary, social security taxes, automobile, etc.). Others have detailed prior consultation rules for many of the B expenses, particularly in joint decision-making agreements.

HOW MUCH FOR A EXPENSES?

Determining the right amount for A expenses usually revolves around determining how much these expenses are costing before separation, or what is expected immediately after separation. With a rough figure in hand, the parties then have to apportion the amount in accordance with their financial abilities. For wage-earners, this may mean splitting the amount in proportion to their earnings. Others, with significant assets, will factor in investment and trust income, as well as non-income factors, such as the availability of vacation homes and the like.

Figuring out the amount for A expenses is often very similar to the usual discussions surrounding regular child support. How to deal with housing costs (mortgage, taxes, utilities, cars, etc.) is often quite challenging. Do you count the number of people (mother and one child yields 50% attributable to the children while mother and two children yield 66% attributable to the children. Or, as some people have done, take the rental cost of a one bedroom apartment and subtract that from the rent of a two bedroom apartment and determine that the difference is the cost attributable to the child.

HOW TO SPLIT B EXPENSES

Although there wouldn’t be a regular monthly payment for B expenses, there still has to be a method for handling these expenses. First, the parties have to agree how much each will pay, usually by percentages. Second, they have to decide on how formal a mechanism they need. Some couples will be comfortable just to agree on the percentages and informally exchange bills and payments. Other couples will need detailed provisions as to notice, copies of bills, and dates for payment.

ADJUSTMENTS

Just as with regular child support, agreements involving young children will need provisions for future modifications due to inflation and changes in parental finances.

Three options are similar to those in regular child support Cost of Living Adjustment clauses:

a. Increase the A expense payment in accordance with the Consumer Price Index (CPI).

b. Increase A expenses in accordance with the income of the non-residential parent, usually with a cap.

c. Use a combination of both, usually the higher or the lower though an average would be possible.

A fourth option:

d. Re-evaluate the amount of A expenses and re-evaluate the amount paid in light of the parents changed financial circumstances.

This fourth option makes the A expenses a little bit like B expenses over the long term because each parent is then contributing in accordance with ability and amount.

Adjusting the contributions to the B expenses can also be re-evaluated regularly in accordance with the parents’ income. These adjustments are often based upon an exchange of tax returns, most often once a year, although exchanges of information every two or three years might work just as well.

DISPUTE RESOLUTION

Just as in any agreement, the parties should be encouraged to mediate or arbitrate any disputes about child support. The expense, delay, and unnecessary adversariness of the courts simply do not warrant the procedural protections of the court system.

SOME OF THE ADVANTAGES

The most obvious advantage of the A/B approach is that it can provide child support in a fashion much closer to that prevailing in an intact family. In a recent arbitration hearing, involving such an agreement, another advantage appeared. Although the parties were much more hostile to each other than usual for a mediated case, the non-residential parent liked the system because he felt that it gave him a lot of information about his daughter’s life that he might not have known about otherwise.

DISADVANTAGES

That same arbitration also demonstrated some of the disadvantages of the A/B expenses method. It kept the couple intimately involved on a financial level. The primary residential parent felt that the other disliked being asked for money every month or so for B expenses. Billing for a wide variety of items resulted in complex bookkeeping, and occasional mistakes such as double billing for the same item.

Further, the agreement was open-ended about B expenses, so they wound up disagreeing about whether certain items were actually B expenses (medical insurance family deductible, a computer for the child, non-prescription drugs). In addition, there was dispute as to what constituted a proper bill: were receipts needed, or just a statement from the custodial parent?

Nevertheless, after some consideration of changing to regular child support, they agreed to keep the plan intact. It was better then the alternative, they decided.

In the case mentioned above, one of the authors was the mediator, the other the arbitrator. The couple’s agreement called for mediation or arbitration of disputed items. In this particular situation, the husband called the mediator asking for a mediation session to resolve the disputed items. After speaking to the Wife, the mediator decided that arbitration was more appropriate and the arbitration clause was triggered.

SAMPLE CLAUSE | CHILD SUPPORT

a. Child support under this agreement shall be divided into two components, one for fixed costs (provided for in paragraphs (h) to (k) below; and the other for variable costs (provided for in paragraphs (l) to (m) below.

b. For the purpose of this Article, the term “gross income” shall be defined to mean “total gross income from all sources.”

c. The parties represent to each other that their present gross incomes, and the respective percentages of the total are:

• Mother $……………%
• Father $…………….%
• Total $………….100%

d. On July 1, ………., and July 1 of each year thereafter, the parties shall adjust the FATHER’s child support payments in accordance with the gross incomes of the parties for the previous calendar year.

e. On or before June 15, ………., and June 15 of each year thereafter, the parties shall submit to each other a copy of their Federal Income Tax return for the previous year. The parties, through their attorneys or accountants, shall have the right to check the above mentioned returns, and the parties shall cooperate by making available to the each other copies of any and all of their financial books and records such as may be requested on five (5) days written notice, certified mail, return receipt requested.

f. In addition to the provisions of paragraphs (d), (j) and (l), the actual amounts of fixed and variable costs will be reexamined by the parties on or before July 1, ………. and each July 1 thereafter, to determine which costs, if any, vary significantly from the amounts set forth in this Article. If there are any significant variations, or, for example, disability of the HUSBAND or WIFE, the parties shall renegotiate the respective percentages and payments for fixed and variable child support provided for in this Article.

g. The FATHER’s obligation to pay child support shall continue until the happening of an “Emancipation Event” as defined in Article ….. below.

FIXED COSTS

h. Child support for fixed costs is based upon the costs attributable to the child for rent, utilities, telephone, cable television, food, clothing, dry cleaning, an automobile used for the child’s transportation, and gifts. Each parent shall pay a percentage of these fixed costs in proportion to their gross incomes.

i. For the year ………., the parties agree that these fixed costs total the sum of $………. per month. As a result, for the period of July 1, ………. to June 30, ………., the FATHER will pay to the MOTHER, as and for his portion of fixed costs of child support, at her present place of residence, or at such other address as she may designate, the sum of $………. per month.

j. The fixed cost of $………. provided in paragraph (i) above has been based upon the May ………. Consumer Price Index for All Urban Consumers, New York, New York/Northeastern New Jersey of the United States Bureau of Labor Statistics, herein called the Index. If there is any change in the Index, after the signing of this Agreement, a corresponding adjustment, shall be made in the fixed costs amount of $……….. Adjustments shall be made on July 1, ………., and annually thereafter. Increases shall be based upon the index for May ….., as compared to May, ………., and each May thereafter.

k. In the event that the Consumer Price Index for All Urban Consumers, New York, New York/Northeastern New Jersey of the United States Bureau of Labor Statistics is discontinued and is no longer available, the parties agree to use another index, to be reasonably agreed upon, which attempts to reflect any rise in the cost of living.

VARIABLE COSTS

l. Child support for variable costs is based upon the costs attributable to the child for tuition for schools and college (including room and board, books and student fees for college), school transportation, child care, after school programs, summer camp, religious instruction including synagogue membership dues, medical insurance and unreimbursed medical expenses (including medical, dental, orthodontia, psychotherapy, surgical, hospital, medications, nursing care and necessary appliances). The parties acknowledge that all of these items may not exist at any given time and that the actual amounts paid for these items may vary from year to year. Each parent shall pay a percentage of these variable costs in proportion to their gross incomes, in accordance with paragraphs (b), (c) and (d) above.

m. The parties agree that the present monthly cost of each of these items, and the Father’s Share, are as follows:

n. Payment of variable expenses will be paid within one week of billing as follows:

Annually, as billed: summer camp;

Semi-annually, as billed: tuition, and medical insurance;

As billed: school transportation, after-school program, religious instruction, unreimbursed medical expenses;

Monthly: Child care, to be paid together with the child support for fixed costs.

The amount paid by the FATHER of $………. per month for child care shall not vary except in the event of “unusual circumstances, including but not limited to reduction because the child requires less care.” The parties agree to renegotiate the payment for child care depending upon the nature of the unusual circumstances.