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The Application Of Child Support Interest
By now we should all be aware that child support accrues interest at 9% a year, as stated at 750 ILCS 45/20.7 and 5/505(b) Interest on support obligations.
A support obligation or any portion of a support obligation, which becomes due, and remains unpaid for 30 days or more shall accrue simple interest at the rate of 9% per annum. An order for support entered or modified on or after January 1, 2002 shall contain a statement that a support obligation required under the order, or any portion of a support obligation required under the order, that becomes due and remains unpaid for 30 days or more shall accrue simple interest at the rate of 9% per annum. Failure to include the statement in the order for support does not affect the validity of the order or the accrual of interest as provided in this Section.
It is my experience that most attorneys do not know what this actually means to our everyday practice which may be due to the fact that there is no case law or a specific statute which explains how this is interest is to be applied. This article will address several maxims to follow in your practice; interest is mandatory, each installment of current support due is a separate judgment in itself, interest accrues each day, and payments made to reduce or satisfy the unpaid amounts must be applied to interest first. If this article drives home any point let it be this, you must account for the accrual of interest when entering an order which applies a payment(s) made by the obligor.
Interest Is Mandatory
The following example is common and has malpractice written all over it. The obligor was ordered to pay $100.00 in current child support on a weekly basis and failed to do so for five consecutive years. The parties show up to court with their attorneys and the obligor turns over a check for $10,000.00, the attorney for the obligee drafts an order which includes an arrearage judgment for $16,000.00. The problem with this scenario and hopefully obvious to all is that the amount of unpaid current support that accrued over the five years totaled $26,000.00 and that entering a judgment for $16,000.00 neglected to account for the interest owed. The amount of interest owed on the first week installment alone would have been $45.65. The interest owed for each of the remaining weeks decreases but remember the obligor owed interest on 260 installments, which is almost $6,000.00 in interest the attorney for the oblige may now be facing in a malpractice situation.
Each installment of unpaid current support becomes a separate judgment
Child support is unlike most civil actions in that each case has multiple payments due, the calculation of interest owed is not like determining interest on a single judgment as most people think. I can't remember how many attorneys have told me that calculating the amount of interest in a child support case is just like calculating the interest for a mortgage. Each of them failed to account for the fact that there is not just one judgment to consider essentially there are multiple mortgages to take into account. That is a lot of pencil sharpening. Each separate payment due be it weekly, biweekly, semi-monthly, or monthly which is not paid becomes a separate judgment, 750 ILCS 45/14(c) and 5/505(d) as follows:
Any new or existing support order entered by the court under this section shall be deemed to be a series of judgments against the person obligated to pay support thereunder, each such judgment to be in the amount of each payment or installment of support and each such judgment to be deemed entered as of the date the corresponding payment or installment becomes due under the terms of the support order. Each such judgment shall have the full force, effect and attributes of any other judgment of this State, including the ability to be enforced. A lien arises by operation of law against the real and personal property of the noncustodial parent for each installment of overdue support owed.
Interest accrues on a daily basis
When looking at all the missed payments over a given length of time most people can determine what is owed for an single unpaid installment that occurred exactly one year removed, simply multiply the individual amount by 9% (.09). However for each payment period which is less than or more than a year old simply multiplying the amount owed for that unsatisfied judgment week by 9% does not work. Obviously an installment of $100.00 which was not paid on January 1, 1995 has accrued more interest than the installment which was due on January 1, 2002. The calculation of the interest accrued becomes precise and uniform after finding out the interest owed for each passing day, simply multiply the number of days that have passed by the daily interest, the Per Diem Interest Approach. This method, Per Diem Interest Approach takes into consideration the 9% per anum language of 750 ILCS 45/20.7, and the language of the Interest Act, 815 ILCS 205/10 as follows:
In all computations of time, and of interest and discounts, a month shall be considered to mean a calendar month, and a year shall consist of twelve calendar months; and in computation of interest or discount for any number of days less than a month, a day shall be considered a thirtieth part of a month, and interest or discount shall be computed for such fractional parts of a month upon the ratio which such number of days shall bear to thirty.
The Per Diem Interest Approach in practice multiplies the installment (an individual child support payment due) by 9% or .09, then divides that figure by 12 for the number of months and 30 for the number of days per month resulting with an amount of interest owed each day, a per diem interest. Unsatisfied judgments in the amount of $100.00 carry a per diem interest of $0.025 and will accrue that amount each day until that $100.00 judgment is satisfied. Remember interest only accumulates on the installment if such is not paid within the 30 day grace period. Once the per diem interest is determined, you simply multiply the per diem rate for every day not paid thereby being able to verify the interest owed on any day for any unpaid installment of any given period of time. This systematic accountability of calculations for each unsatisfied judgment eliminates skepticism that the interest results are in error especially when the interest calculations cover large periods of time. I am not saying performing these calculations for all the missed payments using just a legal pad and a No. 2 is going to be quick and easy but this is what needs to be done.
For those of you who still think simply multiplying the total amount of missed payments by 9% is the proper method to determine the interest owed, what I call the Lump Sum Approach consider the following example. An obligor has missed 52 weeks of $100.00 child support payments, $5,200.00 would be owed if we do not consider the interest. If the Lump Sum Approach is used, the amount owed for interest would be an additional $468.00 (5,200 x .09). After one year has elapsed since the initial installment was due and numerous $100.00 installments thereafter remain unpaid, the amount of interest accrued for the first week installment is more than the interest accrued for week 2 simply due to the fact that more days have passed. Weeks 2-52 of $100.00 payments which remain unpaid have not yet each accrued $9.00 of interest because a full year has yet to elapse for each of those unsatisfied judgments. Thus the amount of $468.00 is too high. The lump sum approach produces an inaccurate interest amount in that the result exceeds what the actual interest would be for those individual 52 weeks of missed payments. Not to mention a very important fact that weeks 49 - 52 are still within the 30 day grace period where no interest attaches yet, 750 ILCS 45/20.7 id.
How payments made to reduce a delinquency/arrearage are to be applied
Whenever an amount is paid in a child support case it is crucial to first reduce such payment by the amount owed for current child support with the remaining amount if any to be applied to the past due amounts. Thus if the obligor is required to pay $125.00 per week for current support and the amount of $200.00 is sent to the State Disbursement Unit only $75.00 should be used for purposes of reducing the amount of unsatisfied judgments.
In the event there are funds available such as the $75.00 above how do we apply this? The application process is derived from the maxims stated earlier, determine which payments were not made, figure the interest owed for each and then apply the available funds. If week one was never paid and the interest owed is only $25.00 then the $75.00 is reduced and the remaining $50.00 is used to reduce the current support that has yet to be paid in full. If there are multiple unsatisfied judgments the $75.00 is applied to the oldest judgment with it's correlating interest reduced first as opposed to picking a judgment to satisfy at random.
The necessity for applying a payment to the oldest unsatisfied judgment first is demonstrated by the following. An obligor is ordered to pay $100.00 per week for current support and fails to pay the first four weeks or 28 days. The obligor would owe a delinquency of $400.00 on day 29 with no accrued interest because 30 days has not yet elapsed on the week one payment, refer to 45/20.7and 5/505(b). If the obligor makes a $200.00 payment on day 29, we first apply $100.00 to current support for week 5 and the remaining $100.00 is applied to the unsatisfied judgment from week one and therefore no interest will accrue. The obligor has technically paid the week one installment within 30 days and should thus be given credit and not penalized.
The real difficult part of these calculations, calculations that are essential in the representation of your client, arise when there have been missed payments and payments that were made sporadically to reduce the judgments. Realistically it may take several payments by the obligor to satisfy one judgment, which requires you to recalculate the interest because the amount of the judgment itself has been reduced thus changing the per diem interest. The results of calculating 9% interest is not the same for $100.00 as it is for $75.00, when you reduce a judgment this change in the per diem rate must be taken into account. It is common to have case involving a five year period of time which is 260 weekly payments and you may have to apply three payments to satisfy a single judgment, which is also requires an additional three or more calculations to reset the proper interest for each of the 260 weeks that were not paid. When you sit down to look at these calculations you will realize they are nearly impossible to do by hand, not to mention the time it would take. I do all my calculations with software created specifically for Illinois called P.A.I.D. Professional, Payments Applied to Interest and Delinquency. This software was created by Davisson Solutions Inc. and can be found at www.davissonsolutions.com/PAID.htm To be upfront I helped in the creation of the product and receive a portion of it's sales.
In sum the consideration of interest is mandatory, every payment made to reduce what is owed should be applied first to any accrued interest on the oldest unsatisfied judgment then to the oldest unsatisfied judgment itself. This process does require multiple calculations, however it provides for specific and consistent results. The following example illustrates this entire analysis. The obligor is required to pay $100.00 per week commencing Friday, January 4, 2002. He makes no payments until the 40th week when he pays $125.00 on October 4, 2002 (a difference of 273 days).
The first $100.00 of the $125.00 is applied to current support for October 4, 2002. The remaining $25.00 is applied to pay off the interest owed on the oldest unsatisfied judgment and in this case it is week one. The interest owed on week one ($100.00 times .09 divided by 12, divided by 30, multiplied by 273 for the number of days) is $6.83. The remaining $25.00 payment is reduced to $18.17 which is then applied to the unsatisfied judgment of week one, $100.00 leaving a balance of $81.83 still owed for week one. Because the January 4th payment is not paid in full and remains as an unsatisfied judgment, on October 5, 2002 interest will begin to run again and continue to run until the obligor makes a payment large enough to pay off the entire interest and the oldest unpaid week of support. On October 5, 2002 the obligor would owe $81.83 for the current support of week one and an additional amount of $0.02 of interest ($81.83 times .09 divided by 12, divided by 30, multiplied by 1 for the number of days) which would increase each day by that amount until another payment is made by the obligor.
With this information you can be more prepared in a child support enforcement case not to mention avoiding a malpractice claim. Now if we could just adapt the legal system to enforce the support owed for children with the same vigor the system prosecutes traffic fines our state can take the lead in enforcement as opposed to the being at the bottom of the barrel but that issue is for a different day.
When the parties cannot reach an agreement on property division, the Illinois court will divide all the property and debts for them equitably. When a property settlement is finally reached, it must be in writing and signed by both parties.
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