BEFORE THE DEPARTMENT OF PUBLIC
HEALTH AND HUMAN SERVICES OF THE
STATE OF MONTANA
In the matter of the adoption of New Rules I and II, the amendment of ARM 37.62.102, 37.62.103, 37.62.106, 37.62.108, 37.62.110, 37.62.111, 37.62.114, 37.62.123, 37.62.126, 37.62.134, 37.62.140, 37.62.148, 37.62.2121, and the repeal of ARM 37.62.136, 37.62.138, and 37.62.146 pertaining to Montana child support guidelines
NOTICE OF ADOPTION, AMENDMENT, AND REPEAL
TO: All Concerned Persons
1. On November 10, 2011, the Department of Public Health and Human Services published MAR Notice No. 37-568 pertaining to the public hearing on the proposed adoption, amendment, and repeal of the above-stated rules at page 2356 of the 2011 Montana Administrative Register, Issue Number 21.
2. The department has amended ARM 37.62.102, 37.62.103, 37.62.106, 37.62.110, 37.62.111, 37.62.114, 37.62.123, 37.62.126, 37.62.134, 37.62.140, 37.62.148, and 37.62.2121 as proposed.
3. The department has repealed ARM 37.62.136, 37.62.138, and 37.62.146 as proposed.
4. The department has adopted the following rules as proposed with the following changes from the original proposal. Matter to be added is underlined. Matter to be deleted is interlined.
NEW RULE I (37.62.105) DETERMINATION OF INCOME FOR CHILD SUPPORT (1) and (a) remain as proposed.
In the absence or near absence of actual income, the value of a parent's assets may be considered for child support. The net value of a parent's assets may be considered for child support where, in a specific case, it would be inappropriate not to do so.
(2) Actual income includes:
(a) economic benefit from whatever source derived, except as excluded in (3) of this rule, and includes but is not limited to income from salaries, wages, tips, commissions, bonuses, earnings, profits, dividends, severance pay, pensions, periodic distributions from retirement plans, draws or advances against
earnings wages or salaries, interest, trust income, annuities, royalties, alimony or spousal maintenance, social security benefits, veteran's benefits, workers' compensation benefits, unemployment benefits, disability payments, earned income credit and all other government payments and benefits. Income also includes capital gains net of capital losses. To the extent the net gains result from recurring transactions, they may be averaged over a period of at least three years. If the net gains are attributable to a single event or year, they may be used to represent income over one or more years;
(b) through (5) remain as proposed.
AUTH: 40-5-203, MCA
IMP: 40-5-209, MCA
NEW RULE II (37.62.124) PARENTING DAYS (1) and (2) remain as proposed.
(3) A "day" is defined as the majority of a 24-hour calendar period in which the child is with or under the control of a parent. This assumes there is a correlation between time spent and resources expended for the care of the child. For purposes of this chapter, and unless otherwise agreed by the parents or specifically found by the court, the calendar period begins at midnight of the first day and ends at midnight of the second day. When the child is in the temporary care of a third party, such as in school or a day care facility, the parent who is the primary contact for the third party is the parent who has control of the child for the period of third-party care. If both parents are primary contacts for a third party, or if the parents are otherwise unable to agree on the total number of days for each parent, the number of disputed days may be totaled and divided equally between the parents.
AUTH: 40-5-203, MCA
IMP: 40-5-209, MCA
5. The department has amended the following rule as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
37.62.108 INCOME VERIFICATION/DETERMINING ANNUAL INCOME
(1) and (2) remain as proposed.
(3) To the extent possible, income for child support and expenses should be annualized to avoid the possibility of skewed application of the guidelines based on temporary or seasonal conditions. Income and expenses may be annualized using one of the two following methods:
(a) seasonal employment or fluctuating income may be averaged over a period sufficient to accurately reflect the parent's earning ability.
If a parent is self-employed, a minimum of three years of profit and loss statements and/or income tax returns for both the individual parent and the business entity are required to consider the average of the parent's income for entry to the child support calculation If a parent has been self-employed for three years or less, the profit and loss statements and income tax returns of the individual parent and the business entity for each of those years are required so that the average of the parent's self-employment income can be considered in the child support calculation. If the parent has been self-employed for more than three years, a minimum of the most recent three years' profit and loss statements and tax returns are required; or
(b) remains as proposed.
(4) Nothing in this rule shall be construed to require the use of any particular method of determining annual income if it does not accurately reflect a parent's
income resources available for child support.
(5) remains as proposed.
AUTH: 40-5-203, MCA
IMP: 40-5-209, MCA
6. The department has thoroughly considered the comments and testimony received. A summary of the comments received and the department's responses are as follows:
COMMENT #1: Regarding New Rule I [37.62.105] a commenter expressed the belief that child support should be calculated on "cash flow" rather than on income for individuals as well as those who are self-employed. The commenter argued that not only should the accelerated component of depreciation be added back to business income but the principal payment on business loans should be an allowable deduction from income for child support.
RESPONSE #1: The department finds this suggestion overly complex and burdensome in terms of discovery but also incompatible with a generally accepted definition of cash flow, such as the following:
Cash flow is "a revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities – financing, operations or investing – although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance." (www.investopedia.com - downloaded 2/2/12)
Cash flow includes, as inflow, profit from the operation of a business which is considered income for child support but also includes proceeds of business and personal loans which are not considered income. Cash outflow includes such items as loan repayment and payment of business and personal expenses and, generally, only the payment of business and some personal expenses are allowable deductions from income for child support. The commenter argues that the child support guidelines should allow a deduction for repayment of the principal of a business loan but would apparently not include the proceeds of the loan as income available for child support. The department is not persuaded by this argument and believes this treatment is one-sided and primarily benefits the self-employed parent.
COMMENT #2: Regarding New Rule I [37.62.105(1)(b)] two commenters found the provision allowing the consideration of a parent's assets in the support calculation "in the absence or near absence of income" to be less than helpful. Both stated concerns with defining "a near absence" because the rule does not do so. One objected to limiting the circumstances in which assets may be considered and one preferred that "net worth" be substituted for "assets" in the provision.
RESPONSE #2: The department intended the provision to ensure that a parent with a high standard of living relative to the child but little or no income be required to support the child according to the parent's standard of living. 40-4-204(2)(c), MCA provides for consideration of "the standard of living that the child would have enjoyed had the marriage not been dissolved" in the calculation of child support.
In the absence of income, a high living standard is likely funded by liquid assets, such as cash, or the conversion of assets to cash. Whether the guideline provision uses the "absence or near absence of income" phrase, the "little or no income" phrase, or the phrase suggested by a commenter "… assets may be considered in those cases where it would be inequitable not to do so," a decision based on the facts of the case and the language of the administrative rule must be made at some point and the rules cannot, and should not attempt to provide for every possible scenario.
In addition, the department is not insensitive to the concerns of the commenter wishing to substitute "net worth" for "assets" in the rule. However, net worth is not the same as assets. It is not clear how the guidelines could be applied to net worth. The department suggests adding "net" to the "value of a parent's assets…" which would allow for deduction of an asset-related liability from the gross value of the asset. The department believes that the following provision addresses all the objections of the two commenters and the department will substitute the following for the proposed provision at New Rule I [37.62.105(1)(b)].
"The net value of a parent's assets may be considered for child support where, in a specific case, it would be inappropriate not to do so."
COMMENT #3: Regarding New Rule I [37.62.105(2)(a)] one commenter considers it a mistake to require the inclusion of "capital gain income" in every case. The commenter felt that if such a gain was a one-time occurrence and addressed in the property division in a divorce, that it should not be counted in a child support determination.
RESPONSE #3: The department finds it would be inappropriate not to review all sources of income and supports the inclusion of net capital gains as income for child support. If the net gains have been divided between the parents, obviously, only that portion of the gains owned by each parent will be considered income for that parent in the calculation. The mere fact that the gain is addressed as part of a property division in a divorce does not render the net capital gain something other than income.
Most property distributions involve a division of assets and, as such, do not enter into a calculation based on income. However, when an asset produces income, the parent's share of that income is available for child support. In light of this commenter's remarks regarding the use of cash flow rather than income (see comment #1) it is useful to point out that the use of cash flow to calculate child support would include not only the part of an investment that is a capital gain but the entire principal amount paid to the parent. For example, the sale of stock for $25,000 may create only a small capital gain – say, $3,000 – but for cash flow purposes, the entire $25,000 would be paid to the parent and would be available for child support.
It is important to remember that net capital gains attributable to a single year or a single event, depending on the amount of the gain and the facts and circumstances of the case, may be used to represent income over more than the single year in which it is received.
COMMENT #4: A commenter objected to the following statement indicating net capital gains may be spread over one or more years, as "nebulous": "If the net gains are attributable to a single event or year, they may be used to represent income over one or more years." The commenter suggested the gains be spread over a fixed period of time, such as a year or 18 months, which period could then be argued by the parties. The commenter also expressed a desire for a provision requiring a second calculation that does not include the one-time income and which takes effect at a specific future point in time so there is an end to the one-time income period.
RESPONSE #4: When establishing or modifying child support orders, the department frequently provides one or more additional child support calculation worksheets when the family's circumstances will change in the near future. Whether a child is emancipating, a job is ending, a student is graduating, or the amount of a capital gain has run its course, an additional worksheet should be provided so that it is unnecessary to return to the court or the department for a modification due to changed circumstances that could have been foreseen when the order was entered or last modified. The department believes that ARM 37.62.140 provides all the authority necessary to provide multiple child support calculations if the situation calls for it.
COMMENT #5: One commenter objected to the inclusion of "severance pay" in the rule for determination of parents' income because it is an outlier and because all child support calculations are assumed to be prospective in nature. Once the severance pay is included, the commenter argues, there is no way short of modification to remove it.
RESPONSE #5: The department would argue that Montana's child support guidelines are more flexible than the commenter suggests. Some circumstances require more than one child support calculation to address a family's situation and, indeed, there are circumstances where a calculation may cover a time period in the past. Severance pay is intended to cushion a layoff or termination and may be the parent's only source from which to pay child support. If necessary, the department suggests preparing one calculation that includes the severance pay and one calculation that does not. The first calculation would be effective for the time period covered by the severance pay and the second calculation effective when that time period ends. See ARM 37.62.140.
COMMENT #6: One commenter objected to the inclusion of "draws or advances against earnings" in the rule for determining a parent's income because draws and advances are not income for child support. The commenter defined draws and advances as withdrawals from the assets of a business.
RESPONSE #6: The department has always understood the disputed language as applying to wages and salary. The department thanks the commenter for pointing out this unanticipated interpretation and the department will modify the phrase, as follows, so that its meaning is clear "…draws or advances against wages or salary."
COMMENT #7: Regarding New Rule II [37.62.124(3)] while this commenter agrees with the department's expansion of the definition of "day," the commenter objects to limiting what the parents may agree to regarding the definition of "day," and feels the language should read "and unless otherwise agreed or the court makes specific findings." This commenter further indicates a similar change should be incorporated in (3) of this rule.
RESPONSE #7: The department agrees the district court always has equitable powers to make specific findings related to variations from the guidelines, and has amended the language in New Rule II [37.62.124(3)] accordingly.
COMMENT #8: One commenter stated approval of the distinction between "line item presumptions" and the "bottom line presumption" in the proposed changes to ARM 37.62.108, but would add an additional sentence to the provision, as follows. "Line item presumptions may be rebutted by findings supported by the greater weight of the evidence and are not subject to specific findings required by 40-4-202(3)(b) MCA."
RESPONSE #8: 40-4-202, MCA does not include a paragraph (3)(b). By the context of the comment, the department believes that 40-4-204(3)(b), MCA is the intended citation. Without judging the merits of the commenter's suggested provision, the department believes it is without authority to bind Montana's district courts in the manner proposed. The department suggests that the Montana Legislature is the proper forum for such an amendment.
COMMENT #9: One commenter found the proposed changes to ARM 37.62.102(2) helpful.
RESPONSE #9: The department appreciates the comment.
COMMENT #10: One commenter felt that reversion clauses referred to in ARM 37.62.102(6) have inherent problems because the parties may dispute the underlying reversion and without a factual dispute, the changes will not be reflected in the court file.
RESPONSE #10: The department agrees that parties may have a dispute as to the underlying facts surrounding a reversion, but that should not be a barrier to the use of such clauses. Further, certain reversions can be addressed in such a manner as to prevent dispute, such as agreement and recitation in the order as to a date of emancipation of a child. Files of the department would reflect a reversion in child support collections when there is no dispute. As a result, this rule will be adopted as proposed.
COMMENT #11: One commenter, commenting to ARM 37.62.102(7) suggested a more general example might be a statement "that the income reflected on tax returns may not accurately reflect the spendable cash available for supporting the family, including the child."
RESPONSE #11: The current guidelines already provide that "Income for child support may differ from a determination of income for tax purposes" at ARM 37.62.108(5). The department believes that "income" rather than "spendable cash" is the proper terminology for the provision.
COMMENT #12: Two commenters objected to the provision in ARM 37.62.108(3)(a) on the basis that it does not address a parent's business in existence less than three years. One commenter also suggested that "if available” be added following the requirement for three years of financial statements and tax returns.
RESPONSE #12: Concerned that "if available" gives the wrong impression regarding the necessity of providing the information, the department has amended (3)(a) to address the objections.
COMMENT #13: Two commenters addressed the rule at ARM 37.62.108(4) which is a new statement informing users that no particular method of determining income is required if it does not reflect a parent's income for child support. One commenter objected to use of the word "income" and preferred the word "resources" to describe that which the parent has available for child support. The other commenter pledged wholehearted support for this new provision.
RESPONSE #13: The department agrees that the broader term, "resources," should be used in this subsection of the rule and has amended the rule accordingly.
COMMENT #14: Two commenters expressed concern that the guidelines in ARM 37.62.111(1)(b) do not allow for the imputed cost of child care when income is imputed to a parent.
RESPONSE #14: Although this particular provision of the child support guidelines is not proposed to change, the question is one that comes up frequently and the department appreciates the opportunity to address it. If a child care expense is entered on the calculation worksheet for the residential parent, the nonresidential parent will pay a portion of the expense and this will normally result in a higher amount of support due. A higher amount is appropriate if the child care is an actual expense but if not, it is the position of the department that the child support is artificially higher. If and when the residential parent is forced to pay a child care expense in order to work outside the home, a modification of the child support order should be considered to accommodate the new expense in the calculation and adjust the amount owing, if necessary.
The 1998 amendments to the child support guidelines introduced the policy that the only deductions allowed from imputed income are for federal and state income tax and social security contributions. Furthermore, imputed income is not to be used in the calculation of tax credits. This is true whether income is imputed to the custodial or the noncustodial parent. Neither parent is allowed, under the guidelines, to reduce income of any kind with imputed child care expenses.
COMMENT #15: Regarding ARM 37.62.134, one commenter expressed dismay at the amount of effort required to determine the number of days a child spends with each parent during a year which is a requirement to completing a child support calculation. The effect of a given number of days on the support calculation is also very complex according to this commenter.
RESPONSE #15: The department is well aware of the complexity surrounding the number of days a child spends with each parent during the year. The department has considered assigning a child to a range of days, such as 111 to 150 but, unfortunately, cliffs or ledges in the child support obligations are the result. A cliff or ledge occurs when a small change in the number of days for the parent results in a big change in the amount of child support. Suggestions regarding an improved method for addressing the amount of time the child spends with each parent are welcomed by the department at any time.
COMMENT #16: Regarding ARM 37.62.134(2)(a), a commenter pointed out that "It is not fair that Mother, to make it possible for Father to increase his earnings, can go out of her way to take the children 2 days per week during their school year and pay all the associated expenses, and not receive any credit for those expenses. Therefore I believe the artificial number "110 days" should be stricken and the amount should be proportional to the number of days Mother has the children compared to the number of days Father has the children."
RESPONSE #16: The department proposed this specific change to the guidelines in 2006 for the same reason. Public comments, many from family law attorneys, were almost entirely negative regarding the change and the department decided not to pursue it.
COMMENT #17: A department employee objected to the repeal of ARM 37.62.146 on the grounds that it is detrimental to a child with a prior determined amount of child support.
RESPONSE #17: The department finds the suggestion fails to consider the statutory requirement to consider all the children to whom support is owed by a parent without regard to when a child was born. In the absence of this rule, a parent's obligation for other dependent children will be considered in accordance with statute, whether establishing or modifying a support order.
COMMENT #18: One commenter requested the rules provide for placing child support liens against livestock.
RESPONSE #18: The department finds that this suggestion relates to situations which are not appropriately addressed in these rules. The department likewise notes that lien statutes and child support statutes adequately provide for such action when appropriate.
7. The adoption, amendment, and repeal of these rules are effective July 1, 2012.
/s/ John Koch /s/ Hank Hudson for
Rule Reviewer Anna Whiting Sorrell, Director
Public Health and Human Services
Certified to the Secretary of State April 2, 2012