The problems in splitting children’s expenses based upon undefined “pro rata income shares”

Posted Friday, January 8th, 2016 by Gregory Forman
Filed under Audience:, Child Custody, Litigation Strategy, Not South Carolina Specific, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys, Of Interest to General Public

I have recently encountered a number of court-approved child support agreements in which child-related expenses are divided upon undefined “pro rata [Latin for “in proportion”] income shares.” Often these agreements were negotiated or drafted by experienced family law attorneys. While the intent is well meaning, the language causes serious problems. Without knowing how “pro rata” income is to be determined, such orders may be impossible to enforce.

There are numerous interpretation issues regarding such language: how is pro rata income to be calculated?; how often is pro rata income to be calculated?; what time period is being considered in calculating pro rata income shares?

Take the simple example of a medical bill for a child dated July 5, 2015? Are the pro rata shares based on the parties’ 2014 incomes? Is it based on actual incomes as of July 5th (and how is actual income calculated if someone has an income that varies pay period to pay period)?  Is it based on year-to-date incomes through July 5th? If so, how would the parties determine each other’s year-to-date incomes?  Do the parties really intend to exchange year-to-date financial income each time the child incurs a medical bill?

An even more complicated example is school expenses. Are the pro rata calculations made each school year or each school semester? For Fall semesters, does one use year-to-date income or the previous year’s income? Spring semester bills are often due the prior calendar year. Are the pro rata calculations based on the income each party is making when Spring semester starts, the prior calendar year, or two calendar year’s hence? If Spring semester 2016 tuition is due in 2015, the parties might need to use 2014 incomes if they don’t know their total 2015 incomes when the bill is due.

It gets even more complicated when one party is self-employed, especially if that party gets an extension on filing taxes. Many self-employed people take a draw during the year but don’t fully know what their net business income is (which translates into their gross personal income) until they complete their tax returns. This can be as late as mid-October the following year.  In that situation, do the parties have to use 2014 incomes to calculate pro rata shares until October 2016?

Other issue can arise when a party quits or is terminated from employment. If one party is temporarily unemployed or simply stops working, does that party’s income share drop to 0% until that party resumes employment? Is that party’s income share now based on earning capacity? Does the length of this unemployment affect the pro rata share?

While a party who refuses to pay any of an expense that is to be divided on a pro rata basis is clearly in contempt of court, it may be hard to fashion a remedy for the other party. Absent clear guidance on how to calculate pro rata shares, a court may find the deadbeat obligor to be in contempt but probably cannot calculate how much that deadbeat owes.

Further, there’s no clear mechanism to ask the court to determine how to define “pro rata income shares.” Abate v. Abate, 377 S.C. 548, 555 S.E.2d 515, 519, n.3 (Ct. App. 2008) would appear to give the family court authority to interpret an ambiguous provision of a family court final order, but does not indicate the proper procedure for asking the court to do so. A contempt proceeding probably shouldn’t be used to interpret an ambiguous order, as “[i]t is well settled that an individual may not be held in contempt for failing to comply with an ambiguous order.” Terry v. Terry, 400 S.C. 453, 734 S.E.2d 646, 650 (2012) (Pleicones dissenting).

Probably the best mechanism for creating a definition is to ask the court for supplemental proceedings. However, there is no clear authority for this remedy and some judges might not consider it the appropriate one. Other judges might determine that only the judge who issued the final order may interpret that order. This can become a serious problem if that judge was a visiting judge or is retired, disabled, or dead.

Further it is unclear how a family court judge might properly interpret such language. “If the agreement is ambiguous, the court should seek to determine the parties’ intent.” Keefer v. Keefer, 394 S.C. 329,715 S.E.2d 379, 381 (Ct. App. 2011). Given the interpretive issues noted above, how could the court determine the parties’ intent regarding such language, especially when the parties probably didn’t consider these issues in entering the agreement?

Attorneys and parties are better off simply listing the percentages each party is responsible for regarding such expenses and noting that significant changes in the parties’ incomes might be a basis to modify that percentage. If the parties still want to divide these obligations on a “pro rata income shares,” the attorneys should at least provide language on how to determine these percentages. While well meaning, the “pro rata income shares” language is an attempt to create a perfectly equitable result that actually leads to prohibitively expensive interpretation issues.