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Apr 23, 2024, 12:04:59 AM

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Why Imbedded Alimony in Child Support Causes Perverse Behaviors

The way support is paid gives the custodial parent an incentive to act in a manner consistent with his or her own best interests at the expense of the child.
In terms of child support, the standard payor/payee support model is explained by saying that the noncustodial parent is paying money to the custodial parent (usually the mother) as a benefit of his economic status to the child. In theory, these funds are to be expended to the child’s benefit. However, it is questionable how much of these funds actually get to the child and how much end up directly benefiting the custodial parent. Since the parent receiving funds is not required to provide any accounting of how the money is spent, they have both the opportunity and ability to spend at least some portion of the funds on non-child related goods or services without any consequences.

The loss of benefit to the child is certainly one problem. However, perhaps the greater problem results from the benefit to the custodial parent because the custodial parent now has an incentive to act in a manner consistent with his or her own best interests at the expense of the child.

Since use of funds is at the mother’s discretion, she will allocate the funds in a manner to achieve maximum satisfaction. Standard economic theory suggests that she will expend some portion on the children and some portion on herself. Given a budget constraint (standard of living portion) and choice between two goods (goods for children versus other goods), a rational consumer will generally choose some of each good over all of one (because a consumer’s indifference curve is generally convex).

The ability of the custodial parent to do this is why approximately one-half of the standard of living portion that the noncustodial parent pays is, in reality, nontaxable imbedded (hidden) alimony, not child support. It is for this reason that the presumed goal of paying child support (increasing the standard of living of the child) has not materialized in the manner that was intended.

There are, however, other consequences to this problem. The existence of imbedded alimony generates perverse incentives that are harmful to children:

  1. There is an economic incentive for one of the parents to have sole custody and exclude the other parent from the child’s upbringing. Parents are now more likely to fight for sole custody at the expense of the best interests of the children. For example, it is standard practice for an attorney to warn a sole custody parent to limit contact between the child and the other parent or risk a reduction in child support award.
    If child support was set at a realistic level, a parent would be, at worst, economically indifferent as to whether the other parent saw the child. In fact, to the extent that the other parent taking care of the child decreases the custodial parent's burden, the behavior of increased participation would be encouraged. This incentive is particularly disturbing in light of a significant body of research that show that the children of divorce who adjust best are those in which both parents are involved in rearing the children.

  2. Nontaxable imbedded alimony increases the incentives to have out-of-wedlock births. Under the current child support system, having a child is an economic benefit regardless of marital status. Further, there is an proportionally greater incentive to have children from multiple fathers since child support schedules award the greatest percentage of child support award to gross income for one child. In other words, a custodial parent receives more money when she has two children with different fathers than if she has two children from the same father. This has a three-pronged effect- it discourages marriage, it marginalizes the father's inherent value to a family, and it promotes a "fractured family" model as the norm.

  3. The current system of child support also encourages the custodial parent to remain unemployed. Most jurisdictions assign support awards based on a calculation called the "income shares" method. Under the "income shares" method, the lower the custodial parent's income the more money she receives from the noncustodial parent. This has the unintended effect of actually lowering the child's standard of living, because the child is no longer able to benefit from the additional income the custodial parent would normally be earning. This income, even at a minimum wage level, would more than offset the reduction of the child support amount that results from using the "income shares" with both parents employed.

It seems clear that the current child support model has built-in deficiencies that virtually ensure abuse of the system, while practically guaranteeing that not all of the money paid will reach the children it is intended for. Until child support levels are reduced to realistic levels and custodial parents are required to provide an accounting of how child support funds are spent, children will continue to be shortchanged.

Companion Document: Child Support Guidelines, Imbedded Alimony and Perverse Incentives

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