Interest on past due child support

Defined

Each state in the United States has its own method of determining the amount of interest to be paid on past due child support. In fact, many states may employ their own special terminology when defining past due child support. Some refer to "support arrearages" or "support in arrears." Some refer to "back due support." Some describe child support as "family support," while for others the term "family support" will include what is generally known as alimony, maintenance or spousal support. (The terms alimony and maintenance are usually reserved to describe cash payments for a spouse rather than for a child or children of a relationship.)

Simple vs. Compound Interest

Knowing the percentage amount of interest to be paid is just one of the factors to be used in the actual calculation of interest. States also differ in whether interest is simple interest or whether it can be compounded. And while most states that permit compounding provide for annual compounding, at least one state, Colorado, provides for interest to be compounded monthly.

Order in which payments are to be applied

Next, there is the often confusing question as to the order in which payments are to be applied. In simple interest situations, the possibilities are (1) apply a payment first to interest, then to principal; (2) apply a payment first to principal, then to interest; (3) apply a payment first to the current month's obligation, then to interest, then to principal. There is fourth payment allocation description in use in some states (e.g. California Code of Civil Procedure Section 695.221, effective January 1, 2009) which calls for payment "first to current month, then to principal, then to interest." In fact, however, this method of allocation is mathematically the same as method #2 above - first to principal, then to interest - for the reason the current month's obligation becomes part of the principal immediately upon falling due.

Grace periods

Some states have added an additional level of complexity to the interest calculation problem by providing what amounts to a front end interest free loan for a period of time after a payment falls due. Presumably, this "grace period" is given to allow for processing and accounting delays - these being the time taken when a payment is made through the Registry of a Court. Some states allow a 30-day grace period, a 31-day grace period, or a "one month" grace period. Thus, a payment made within the grace period is treated as if paid on time.

Changes in law over time (old debt, new law)

Finally, most states have changed their own rules over the years, such that the rate, the compounding method, the order in which payments are to be allocated and the grace periods are not the same from year to year over the life of a child support obligation. Questions can then arise as to whether last year's unpaid child support (old debt) remains subject to this year's changed rules of calculation. In times of increasing interest rates, should old debt start earning interest at the new higher rate? In times of decreasing rates, should old debt start earning less? Is interest on debt, incurred before compounding was allowed, to be compounded now that compounding becomes the law?

No special rules for child support

Some states have no special child support rules, electing instead to treat past due child support the same as any other debt situation. ....

Child Support Enforcement offices

Each state has a Child Support Enforcement agency. In some states this responsibility is undertaken by an agency known as the Department of Social Services, the Department of Human Services, the Department of Health and Human Services or some similar name. Elsewhere the responsibility is with a division of the local District Attorney. A few states have a specialized statewide child support enforcement agency that is a division of the state attorney general's office. ....

Use of spreadsheets to calculate interest

It is possible, but difficult, to create an Excel spreadsheet to assist in calculation of interest on past due child support. Use of a spreadsheet may be practical, however, if all transactions (obligations due and payment made), regardless of actual dates, are "forced" to the first day of each month. While obligations often fall due in a uniform amount on the first of each month, that is seldom the case for payments made.

In order to use a spreadsheet, it may also be necessary to treat all months as being of equal length (365/12). When all transactions are posted to the first of the month, and all months are presumed to be of equal length, interest computations from month to month can be easily performed with the same replicated formula.

Some jurisdictions may allow one to assume that a payment is timely if made during the month it falls due. For such jurisdictions, "force dating" all irregular payments to the first of the month would have no mathematical effect. For such jurisdictions, the spreadsheet may be a practical solution.

Regardless of force dating and equal month presumptions, making a permanent spreadsheet template that could be used in nearly every situation is nearly impossible as the "template" will need editing in nearly every situation. (e.g. Rows would have to be added or deleted for each particular case.)

If all events are dated as of the first of the month, and all months are presumed to be equal, the calculations will almost always favor the one who is late in making payments.

Specialized software to calculate interest

Several specialized commercial software programs are available to calculate interest on past due or back due child support. These programs overcome the difficulties of using a spreadsheet program such as Excel. Generally, these program are specifically designed for situations with irregular payment histories, irregular rate changes and unusual payment allocation options. For example, in a child support arrears calculation it is often required that a payment be applied first to the current month's obligation, then to interest and then to prior accrued principal.

Alabama

Judgments for the payment of money, other than costs, if based upon a contract action, bear interest from the day of the cause of action, at the same rate of interest as stated in said contract; all other judgments shall bear interest at the rate of 12 percent per annum, the provisions of Section 8-8-1 to the contrary notwithstanding; provided, that fees allowed a trustee, executor, administrator, or attorney and taxed as a part of the cost of the proceeding shall bear interest at a like rate from the day of entry. Recent changes to Section 8-8-10, Code of Alabama 1975, changed the rate of interest charged on judgments. As of September 1, 2011, the interest rate charged on past due child support arrears will be 7.5% per year. Child Support arrearage judgments that occurred between November 13, 1981 and August 31, 2011 shall accrue interest at the rate of 12%. Judgments prior to 11/13/81 will continue to accrue interest at the rate of 6%.

California

10% simple interest. Payments applied first to current, then to principal, then to accrued interest. No grace period.

Colorado

12% compounded monthly. Because interest is compounded, there is no significant accrued interest account. The current month's obligation becomes part of principal immediately when due. Therefore, there is no issue as to the order in which payments are to be applied. All payments are applied to principal, which includes accrued interest because interest has been compounded. No grace period.