Courts Now Consider Reasonable Needs in High-Income Support Cases
In high-income child support cases, the parent who is paying child support might feel the guidelines provide more income than the custodial parent can reasonably spend, particularly for an infant or toddler. On the other hand, the child support guidelines were enacted years ago to ensure that all children at a particular income level are treated the same, with predictable outcomes that encourage parents to settle out of court. The clash of these viewpoints came to a head recently, when the Pennsylvania Supreme Court reached its decision in Hanrahan v. Bakker, No. 19 MAP 2017 (June 19, 2018). The court vacated and remanded a child support award in which father was ordered to pay more than $52,000 per month.
In Hanrahan, the father of two children had an extraordinarily profitable year, earning more than $15 million in 2012. The children’s mother requested an increase in child support under the terms of a marriage settlement agreement that authorized an annual review. Notably, father and mother had equally shared physical custody of two minor children, rotating custody on a weekly basis. Father presented an analysis of his household expenditures for the children, and Mother’s budget. Each parent was spending approx. $2,000 per month for the children in his or her household.
The trial court applied the income-driven guidelines formula to arrive at a figure of more than $52,000 per month in child support. Faced with a vast discrepancy between the child support guideline and the children’s expenses, the trial court ordered $30,000 of the monthly child support to be deposited into an UTMA custodial account. Mother filed an appeal, raising three issues, and father also appealed on four issues.
In the Superior Court, father argued the child support statute, 23 Pa.C.S. § 4322(a), expressly requires that the Guidelines “shall be based upon the reasonable needs of the child.” Father argued the trial court should have considered the mother’s household expenditures as a benchmark for deviating from the guideline, and as the third step in a special process for handling high-income child support cases. He argued the trial court exceeded its authority by ordering him to pay into a custodial fund not warranted by present needs or requested by either parent.
The Superior Court sided with mother, who argued reasonable needs are built into the child support guidelines; and recent amendments to the law prohibited the budgetary analysis that courts once performed in high income cases. Mother argued, and the Superior Court agreed, “reasonable needs” were not valid grounds to justify a downward deviation from the guidelines.
The Pennsylvania Supreme Court took up this case, one of the only family law issues to come before the court this year. The court began by reviewing the history of the child support guidelines, which were prompted by a federal mandate to streamline the determination and collection of child support. The guidelines were intended to create a rebuttable presumption that would eliminate a detailed analysis of each family’s expenditures. In fact, soon after their enactment, the Supreme Court issued a decision holding that the child support guideline should not be viewed as a mere starting point for calculating child support. However, Judge Baer observed in his opinion, the guidelines are supported by valid economic data up to their $30,000 limit, but not beyond.
Justice Baer dismissed the notion that the child support guidelines inherently account for the children’s reasonable needs at high-income levels, and that Rule 1910.16-5 precludes any consideration of reasonable needs in high-income cases. The court held the guidelines formula, which applies a fixed percentage at income levels above $30,000, could not inherently account for reasonable needs because it is not supported by valid statistical data. For this reason, the children’s budgetary expenses become more probative at high-income levels. The court held Factors 7 and 9 of the deviation criteria (Rule 1910.16-5) must authorize an examination of reasonable needs in a high-income case, as “it is one of the overarching criteria” under the child support statute.
The court took pains to distinguish high-income cases from routine child support cases, where reasonable needs are presumed to be met by the child support guidelines under the Income Shares model. When high-income cases depart sharply from the income limits of the economic data, as they did in Hanrahan, then a specific reasonable needs analysis becomes more probative. This might be the reason why parents are required to submit expense statements in high-income cases under Rule 1910.16-3.1, but not in routine cases.
The court acknowledged its decision might lead to inconsistent treatment of similarly situated high income families. Yet, the court directed the trial court to give “more weight” to the guidelines formula than to the parents’ budgets. It seems likely the formula will be given the most weight in cases that are just beyond the $30,000 threshold.
These complicated financial issues should be discussed with a team of experienced family law attorneys, especially those adept at high-income cases. Call Pollock Begg Komar Glasser & Vertz LLC at (412) 471-9000 or fill out our online contact form to review your particular case.
With an MBA, certification as a valuation analyst and more than two decades of experience handling complex financial affairs, Partner Brian C. Vertz excels at cases involving assessment of personal assets including premarital wealth and trusts, valuation of closely held businesses, executive compensation, medical and dental practices and complex child support litigation. Brian was selected as the Pittsburgh 2019 Lawyer of the Year for family law through The Best Lawyers in America peer review process.