Part of Real World Divorce: web edition | Kindle edition
As noted in our Minnesota chapter, the 1.5-mile trip across the Blatnik Bridge from Superior, Wisconsin to Duluth, Minnesota could mean the difference between child support profits of $10 million and a surplus of only $180,000. The lawsuit over who gets $100 million in pre-marital savings in Wisconsin would, if the married couple had decided they liked the view of Lake Superior from the Duluth side, become a lawsuit over who kept the ice cream maker wedding gift.
Julie O'Halloran, a "Super Lawyer" in Milwaukee, taught us about Wisconsin law and customs. She has been practicing family law in Wisconsin since 1989 and is also an expert on alternative dispute resolution. See http://www.mgjo-law.com/ for a full biography.
Despite her passion for alternative dispute resolution, O'Halloran does go to trial every year or so in a divorce case. "I use to do it 3-4 times per year," she noted, "but the more experience you have the less you actually try." Plaintiffs in Wisconsin are called "petitioners"; the people who get sued, defendants in other states, are "respondents."
If a case were filed today, O'Halloran says that it would go to trial in 10-12 months, faster than in most eastern states. Must it take that long to get the house, kids, and cash flow? "A petitioner can seek a temporary order within 30-45 days of filing her case," says O'Halloran. "The parties will appear before a commissioner rather than a judge." Are there witnesses and cross-examination? "No," says O'Halloran. "It is an informal non-evidentiary hearing. Lawyers make arguments and offers of proof [descriptions of what they would bring to a trial]. They last about 20 or 30 minutes."
How important is winning at the temporary hearing? "In theory it is non-prejudicial," says O'Halloran, "but in practice the temporary orders tend to drive results at trial due to momentum. Judges are not inclined to disrupt something that appears to be working. If you don't like your temporary order you need to be proactive in trying to get a modification, e.g., by asking a judge to review the commissioner's decision or asking the court to appoint a Guardian ad litem [GAL]."
What are the qualifications of a GAL in Wisconsin? "The GAL must be an attorney and also needs to have taken some training," says O'Halloran. "The GAL will make a custody recommendation at trial but there can also be a custody evaluation performed by a social worker or psychologist." What does a custody evaluation consist of? "Interviews and background checks," says O'Halloran. "If psychological testing, such as the MMPI, is needed that must be done by a Ph.D. psychologist who would ultimately testify about the intelligence and mental health of the parties." Does everyone in the country with a law or mental health degree get paid in each divorce case? "Psychological evaluations are used very infrequently now. They were more than norm when I started practicing [i.e., back in 1989]." If psychology is scientifically based and the divorce courts back then had the same "child's best interest" standard, why would things be done so differently today? "It turned out that bringing in psychologists was like taking a snapshot of a person at the worst moment of his or her life. Even if you could get around that problem, oftentimes a psychological evaluation is not that helpful because it doesn't touch on the practical issues of parenting kids."
Wisconsin's child support system is, like New York's, very simple (unless a parent owns a business or investments; see below), and in fact uses the same percentages. Start with a defendant's gross income and multiply by a percentage that depends on the number of children:
The Wisconsin guidelines say that "the court may apply" lower percentages for higher incomes, specifically 14, 20, 23, 25, and 27 percent for income between $7,000 and $12,500 and 10, 15, 17, 19, and 20 percent for income above $12,500.
Unlike New York's system, however, Wisconsin doesn't cap the income on which these multipliers are used. Economist R. Mark Rogers points out that systems like this essentially flout the federal law requiring that states develop child support guidelines based on economic data on what parents actually do spend ("[in developing guidelines] a State must consider economic data on the cost of raising children"; 45 CFR 302.56). Yet, in fact, according to Rogers's published papers, all economic data shows that, as income increases, parents spend a lower percentage of income on children.
Consider a concrete example. Suppose that hedge fund manager John Paulson visited the University of Wisconsin in 2006 to explain to some economics graduate students why his hedge fund was betting against subprime mortgages. He enjoys the cocktail party a little too much and wakes up next to one of the 25-year-olds. She gives birth to twins early in 2007, a year in which Paulson made $4 billion. Under the Uniform Interstate Family Support Act (UIFSA), because they had sex in Wisconsin she can sue Paulson under Wisconsin law in Wisconsin courts, rather than under New York law in New York courts. Depending on which percentages the judge decides to apply, she is entitled to between $400 milllion and $1 billion in tax-free child support in 2007. Can she spend that on Diaper Genie refills and Costco wipes for the babies? If not, it is hard to see how the guideline-based award is related to the federal law's "cost of raising children." Similarly, Paulson had another banner year in 2011, earning $5 billion. Absent a judge sympathetic to Paulson, his plaintiff is now entitled to $1.25 billion in child support for that year. The twins have celebrated their 4th birthday. With her child support, she can send them to soccer day camp and also, if Paulson takes care of them on a standard every-other-weekend schedule, buy more than 1 million Happy Meals for each day that the kids are with her. Her kids can each have a Happy Meal and still have enough left over to provide lunch to every child under 18 in the state of Wisconsin. Alternatively, she can buy the kids the median-priced Wisconsin house. And burn it down an hour later. And do that again every hour for the entire year.
How do her earnings compare to those of her classmates? The Bureau of Labor Statistics says that an economist enjoyed median pay in 2012 of $91,860 per year. That's about $62,000 per year after Wisconsin state and federal income taxes. Thus in 2011, the student who had sex with the speaker would earn as much, after tax, every 30 minutes as her average classmate who spent the night with a textbook would earn every year. Approximately 1,000 economics PhDs are earned each year in the U.S. The student who had sex with the speaker would out-earn all of them combined. In fact, using the BLS data, she would out-earn all Americans who earned economics Ph.Ds between 1995 and 2015.
The situation isn't all that different from what would happen in California or Massachusetts, in which the legislators and judges are trying to give the child of a one-night encounter the same material lifestyle as if the parties had married. Wisconsin arrived at a similar place via a different path. Rogers explains: "Wisconsin-style child support guidelines were developed for welfare situations but then later applied to all income levels, not taking into account well-established economic facts on consumers' spending and tax patterns. They essentially do not have an economic foundation as a generalized child cost model." ("Wisconsin-Style and Income Shares Child Support Guidelines," Family Law Quarterly, 1999)
In theory the guidelines allow a judge to deviate from "the percentage standard" if it is "unfair to the child or to any of the parties." Do judges really hand out the bonanzas called for in these guidelines? "Yes," says O'Halloran. "I have been involved in cases with professional athletes. Judges will put in $2 million per year or $20,000 per year." Does pointing out that they are thereby making a one-night encounter more lucrative than a lifetime of work help? "No," says O'Halloran. "Judges must apply the guidelines. It is related to receiving federal funds."
Note that neighboring Illinois has a similar system, but it is both more complex and less lucrative. Illinois starts with net (after tax) income, rather than gross, and therefore there is more potential for argument about what the correct income figure is (but see below for what happens with defendants who own businesses or investment assets). The percentages in Illinois are slightly larger, e.g., 20% for 1 child, but for people with enough income to be worth suing the final child support number will be much lower due to the pre-tax/after-tax spread. Finally, judges in Illinois, according to the attorneys we interviewed, regularly set a limit on how much child support they are willing to award and it may be difficult to obtain more than $120,000 per year in tax-free revenue based on custody of a single child.
A Wisconsin judge can free a plaintiff of any risk of loss due to a defendant's death by ordering the defendant to, in addition to paying child support, also purchase life insurance to secure the payments in the event of death. An estate, on the other hand, would not have to pay ongoing child support awards.
Not every aspect of Wisconsin law favors a child support plaintiff. The court loses jurisdiction at 18 (19 if still in high school) and cannot order a parent to pay for college tuition. A divorce lawsuit filed in Massachusetts, for example, when the couple's child was 17 years and 11 months old, could yield five years of child support (until the 23rd birthday) at $100,000 per year plus $300,000 in college costs imposed on one parent. The same suit in Wisconsin might result in a larger child support number being kicked out but it would last for just one month and the parents would have to talk about how to divide college expenses.
A defendant will be ordered to pay health insurance on top of the core child support amounts (i.e., in the preceding example Paulson would have to hand over $1.25 billion and also visit the Obamacare exchange to purchase insurance with his Visa card). Whether or not a defendant pays for day care depends on the child's schedule: "Once a parent has placement 25 percent of the time or more," says O'Halloran, "at that point you'll see variable expenses being divided according to placement time and income disparity." What costs are considered "variable"? "Those include child care, tuition, school activities. If a parent had 100% placement she would not get child care on top. If she had only 75% placement then she would be able to get child care paid on top of the guideline percentage."
Considering the extra costs for life insurance (on the child support payor) and health insurance (for any children), a child support defendant in Wisconsin may pay substantially more than the published percentages of gross income.
Parties can freely contract out of Wisconsin's system of potentially dividing pre-marital property. According to O'Halloran, a "walk-away" prenuptial agreement is valid "as long as it was fair when signed and fair when applied." Would it be considered unfair if they had unequal income at the time of the divorce? "Probably not if they also had unequal income at the time the agreement was signed"
The average hourly wage in Wisconsin is $20.15 per hour, compared to $22.42 per hour in neighboring Minnesota. Census 2014 data show that the median income for a 22-36-year-old college-educated woman working full-time is $48,000 per year ($34,506 after taxes). The corresponding man earns $45,000 per year ($32,697 after taxes). Attending University of Wisconsin, Madison for four years will cost $91,598. Wisconsin collects 11 percent state residents' income to run state and local government (compare to a national average of 9.9; source: Tax Foundation). Wisconsin state and local governments spend a higher percentage of their budgets on what the U.S. Census Bureau calls "welfare" than all states except Maine and Rhode Island (source: 2007 Census of Government Finances).
The average annual cost of child care is $13,579 for an infant and $10,470 for a four-year-old. The total cost of child care from age 0 through 12 is about $87,084 in commercial settings or $52,354 in a family care setting.
The male college graduate will have an after-tax spending power of $366,160 after 14 years of working (14 years of income minus taxes and the cost of college). After adjusting for USDA-estimated expenses of caring for a single child, he would have a higher personal spending power by collecting child support of $2,445 per month or more. This requires suing a woman earning $172,588 per year. With two children from two different mothers, however, he could have an after-tax spending power larger than in the college/work scenario if each mother paid $1,598 per month, which is possible when each mother earns $112,800 per year in gross income.
The female college graduate will have an after-tax spending power of $391,486 over the same time period. She would be better off collecting child support when that exceeds $2,562 per month. She can get this by suing a man earning $180,847. If she is suing two fathers, however, she is financially better off compared to the college/work case when she can get $1,656 per month from each one. This happens when each defendant earns at least $116,894 per year.
Among residents surveyed by the U.S. Census Bureau in March 2014, 95 percent of those collecting child support were women. Of women in Wisconsin aged 30-40, approximately 18 percent collect child support.
A 35-year-old female hand surgeon earning $325,000 per year marries a 33-year-old photographer. She sets up her husband with a photo studio and $100,000 of equipment, but he works just a few hours per week. They have a one-year-old child who is cared for by a nanny. The father is often home with the baby and nanny, but he spends most of his at-home time watching TV and surfing the Internet, leaving the child-rearing chores to the nanny. With the mom at work and/or taking care of the baby, the dad begins an affair with a young fashion model. After two years of marriage, the mom sues for divorce, custody, and child support.
What happens to the child? "The first thing that jumped out at me and that would be a key issue in Wisconsin is the age of the child," said O'Halloran. "One of the factors is the child's developmental needs. There are judges in Wisconsin that will not order overnight placement until a child is two years old. The father would have frequent short visits instead." What method would be used to arrive at a schedule? "Wisconsin has a presumption that the judge, in ordering a schedule, should try to maximize the child's time with both parents." But if the father is in fact available all of the time, due to his lack of career success, wouldn't that mean the child was with the father every minute that the mother was at work? "No," responded O'Halloran. "The court will look at the amount of time that dad actually spent with the child [prior to being sued]. There are really strong protective measures that will go up to protect the child from dad. He is at risk of not having a shared arrangement."
So what's a best guess as to an actual schedule? "The father would have placement three or four days per week for six to eight hours during the time when mom is at work," said O'Halloran, "plus some quality time on the weekends, e.g., all day Sunday or Saturday. The child would be with mom in the evenings and nearly all overnights." O'Halloran explained that under this arrangement the mother gets the maximum possible child support ("the starting point is to count overnights") despite the fact that the father might actually take care of the child for more non-sleeping hours. "You can argue that that he has 'overnight equivalent time'," O'Halloran explained, and that if the child has placement with the father at least 25 percent of the time both of the parties' incomes become relevant for child support and conceivably she could end up paying him. "I would expect the mother to fight hard to keep the father's time with the child under 25 percent," O'Halloran observed, consistent with the conclusions of academic psychologists who have studied shared parenting.
Given that O'Halloran's best-guess schedule has the child with the father for fewer than 25 percent of the overnights, how can the mother's child support payments be calculated? The guidelines say 17 percent of the father's income but his photography business is not profitable. "The court would establish his capacity to earn money," noted O'Halloran, "possibly based on the testimony of a vocational expert brought in by the mother."
How sticky is a primary placement designation won when a child is a year old? "The statute says that once an initial order is made, the court cannot change it for two years unless you can prove that the current order is harmful to the child psychologically or physically," says O'Halloran. "After that you to show a 'substantial change of circumstances' for the court to reevaluate what the 'child's best interest' might be." Is Wisconsin like some other states in which a child growing up from age 1 to age 15 is not a "change" because it was foreseeable? "No," says O'Halloran. "A child getting older could be considered a substantial change."
When does the child get a say in his or her schedule? "From a practical standpoint, kids have to be at least 12 or 13 years old to influence placement," says O'Halloran. "They need to be able to articulate a reason for their preference."
Whatever the child's schedule or "placement," O'Halloran says that there is a presumption of joint legal custody (what some states call "decision making") and that these parents would have it.
O'Halloran charges $325 per hour and expects the fees on each side to be approximately $35,000 if this case were to go to trial, plus another $5-10,000 for custody evaluation. Based on the income disparity, can the defendant get the plaintiff to pay his fees? "Probably not," says O'Halloran.
Based on his lower earning potential, can the father get alimony and a favorable property division? "The factors for determining maintenance ('alimony') include the length of the marriage and it is more difficult to get maintenance unless you've been married for five or six years. She may have exposure to a disproportionate property division."
How is property division supposed to work? "Wisconsin is a community property state," responded O'Halloran. "The starting point is a 50/50 split of everything that they brought in and everything that was accumulated during the marriage. The only assets excluded are inheritances and gifts." What if one person comes in with $10 million and the other with $0? They get married on Sunday morning and the divorce lawsuit is filed Monday morning. "The presumption is $5 million to each," says O'Halloran, "but in practice judges can use their discretion to deviate and, following a short marriage, may issue an order to restore the parties back to where they were before the marriage."
A 22-year-old woman marries her 22-year-old college sweetheart. After 14 years of marriage, they have four children, ages 3, 7, 9, 13. Both parents are public school teachers earning approximately $65,000 per year. They have shared child care duties roughly equally over the years. Now they can't stand to be in the same room together. He accuses her of having an affair. She accuses him of being verbally and emotionally abusive to her, but not to the kids. After a stormy argument in the kitchen, he moves in with a friend and she files for divorce, requesting sole custody and child support. The father answers the Complaint by requesting sole custody, but no child support. Both parents agree that the marital assets can be split 50/50. Both parents prefer as little post-divorce contact with the other as possible.
Due to the fact that they hate each other can they get out of the presumption of joint legal custody? "No," says O'Halloran. "Only if the other person is not capable of making decisions or can demonstrate to the judge that the parties are unable to cooperate."
Suppose that both parents come to court asking for primary placement. Can the judge ignore both and award a 50/50 schedule? "Yes," says O'Halloran, who thought that this case would end up with a schedule close to 50/50, e.g., 2-2-3 (not 2-2-5-5 "primarily due to the three-year-old [not being able to handle a longer separation]") but "week-on, week-off is also common."
Is Wisconsin like other states where a parent seeking primary placement can blow up shared parenting by generating conflict with the co-parent and then citing that conflict to the judge? "No," says O'Halloran, "courts are pretty savvy about the causes of conflict and they are not even that interested in hearing arguments that one parent is better than the other. The time that the kids can spend with both mom and dad typically trumps arguments about the quality of the parenting, assuming there are not serious parenting deficiencies."
Due to the equal incomes there would be no child support or alimony in a divorce ending in 50/50 custody. What would the financial stakes be if a parent could persuade the court to award a 75/25 schedule instead? The winner parent would enjoy an after-tax income of $49,766 from working and filing as head of household with 4 dependents plus 31 percent of the loser parent's gross income, $20,150 per year, received as tax-free child support. The loser parent would start with $45,715 after taxes (filing single) and have $25,565 per year to spend after paying child support (i.e., below the poverty line for a five-person household).
How about stressing the abuse allegation to get primary placement and 2.7X the after-tax spending power of the defeated spouse? "She may get a lot of mileage if she can prove abuse," says O'Halloran. "If there is a history of domestic violence or substance abuse then you can overcome the presumption of joint custody." How far back does the history need to go? Can a Massachusetts-style "The person I sued a year ago is abusing me and/or the kids" allegation work? "No," responded O'Halloran. "It doesn't work to start with allegations of domestic violence after a divorce lawsuit is filed unless the domestic violence is the basis for the divorce. There has to be credible evidence." Can a domestic violence allegation be proved to a judge's satisfaction solely with the testimony of a litigant? "Sometimes. Here again, it depends on the credibility of the witness," said O'Halloran. How far will people go to get the domestic violence advantage in a divorce lawsuit? "I was involved in a case where mom would accuse dad of abusing the kids and would take them to the hospital with cuts and bruises. Mom was injuring her own children." Did the courts figure this out? "No," said O'Halloran, "but the hospital did and ultimately refused to return the children to the mother's care."
An 18-year-old woman marries a medical resident. She spends the first four years of the marriage as a college undergraduate, earning a bachelor's degree, and then becomes a stay-at-home mother to two children. She files for divorce after 10 years of marriage. The kids are 5 and 2 years old at the time the divorce commences. The plaintiff does not allege any misdeeds on the part of the father, only that they drifted apart in the time that she aged from 18 to 28. The mother has very obviously been the primary caregiver. The father has now completed his medical training and is earning $275,000 per year. The family has home equity of $300,000 and additional savings of $200,000.
The basic child support formula would give the mother $68,750 per year tax-free (25 percent of $275,000), more than the median household income in Wisconsin (about $53,000 per year, pre-tax). Can the mother continue her stay-at-home lifestyle at the same standard of living via court orders for alimony? "No," says O'Halloran. "The court will expect both parents to work going forward. The court would ask the mom 'What can you do?' and would be sympathetic to her request to go back to school to prepare for work. This could lead to him paying alimony for 4-6 years."
O'Halloran expects a judge to award close to a 50/50 schedule in this scenario. What if the father wants to cut back his working hours so that he can spend more time with the children, now that he is no longer part of a voluntary breadwinner/stay-at-home partnership? Is Wisconsin like other states in being hostile to anything that would reduce the breadwinner parent's income post-divorce? "No," says O'Halloran. "If he says that he will change his schedule, he could cut back to $225,000 per year [without the court imputing his former income for purposes of calculating child support and alimony]. There is actually a factor in our custody statute that talks about a parent making lifestyle changes to spend more time with children."
How much alimony will she collect during the transition-back-to-work period that O'Halloran predicts? "Child support is calculated first and then maintenance. It would not be unusual for one to expect to see his income divided so that he has 55 percent of after-tax income and she would have 45 percent." [I.e., if she were to allow him to use the dependent exemption for the child, and his income remained at $275,000 per year, the ADP Paycheck Calculator shows an after-tax income of about $174,500 per year of which she would receive $78,525, only $10,000 per year more than child support.]
Can she get an unequal property division based on her lower earning capacity? "No," responded O'Halloran. "The presumption is 50/50 and with support there is not a significant disparity in income going forward."
A 25-year-old woman marries a 40-year-old never-married medical doctor earning $275,000 per year. She had been earning $50,000 per year working as a receptionist in a medical office. She has a child after a year of marriage, quitting her job during the 7th month of pregnancy due to fatigue. She files for divorce when the child is 8 months old (after 1.75 years of marriage), alleging that the father did not participate in the infant's care, e.g., he did not change diapers or get up in the middle of the night to soothe the baby. The mother will allege that the father was verbally demanding and abusive, though there won't be any witnesses to corroborate. The father had savings of $2 million that he accumulated prior to the marriage but there was no significant accumulation of assets during the less-than-two-year marriage. The mother seeks a division of assets as well as alimony.
As in neighboring Minnesota where our source said "if you look at reality you will find that [a plaintiff] mom is in control when a child is young," O'Halloran noted that "Dad's definitely behind the eight ball in this scenario. There are very few arguments that he can make to the court for getting a 50/50 parenting schedule. He is at a serious disadvantage."
Could the doctor ask for a schedule that would provide increasing amounts of time with the father as the child gets older? "No," said O'Halloran. "Wisconsin courts cannot make prospective orders. There cannot be an automatic step-up with the child's age."
Does this tend to favor litigation when a child is very young? "If what she wants is sole placement and to maximize the amount of money she is going to get, she should sue now when the child is still young," says O'Halloran.
The plaintiff's profits here start with $46,750 per year in tax-free child support based on the defendant's $275,000 per year salary. She would also get 17 percent of any interest or dividend income on the $2 million in savings.
What about her attempt to get a share of what had been his $2 million in pre-marital savings? "The court does start by including his $2 million as a marital asset," says O'Halloran, "but can deviate by focusing on her needs, e.g., for post-divorce housing. Most likely the court would return to him the great majority of the $2 million."
Note that investment income is not adjusted for inflation. Thus in a period of high inflation the $2 million might earn an interest rate of 15 percent despite the fact that the investment was not growing in real terms. In that situation, a combination of Wisconsin's 17 percent child support rate plus federal and state taxes would result in most of the doctor's savings being transferred out over the 17 years remaining before this child turns 18. Because Wisconsin's child support calculation is based only a defendant's income rather than any consideration of a child's costs, In other words, Wisconsin provides for de facto property division of pre-marital savings through child support whenever the U.S. experiences inflation.
An 18-year-old woman goes to a music festival and meets a 38-year-old medical doctor earning $275,000 per year. Things get a little crazy and a few months later she calls him up to say "I am going to have a baby." The 18-year-old does not go to college, quits her $12/hour job during the pregnancy, and does not wish to return to work.
The plaintiff's profits here start and end with $46,750 per year in tax-free child support [compare to the capped $22,596 per year number in Minnesota], though the father may be ordered to pay additional costs such as health insurance and life insurance for himself.
What if the father seeks shared parenting? "It is tougher to get 50/50 placement in paternity cases due to the father never having lived with the child," says O'Halloran. "There is no history that you can establish of caretaking." (Consistent with what another attorney told us: "jobless teenagers are sent home from hospitals with two-day-old infants and nobody expresses any doubt that they can care for the child while high net-worth middle-aged divorce lawsuit defendants with multi-decade records of career accomplishment are scrutinized skeptically for their ability to feed a 1-year-old child his or her morning yogurt.")
Does the mother need to hire a lawyer at all? "She can use a state agency [http://dcf.wisconsin.gov/bcs/ is the helpful web site] to establish paternity and address child support, health insurance, and life insurance but she cannot use them for custody or placement," says O'Halloran.
How about waiting for a few years to cement a sole parenting system and then suing for back child support? "You used to be able to pursue child support up until a child's 19th birthday. I was involved in a case where mom had a one-night stand in California then came back to Wisconsin," said O'Halloran. "She filed an action to collect support back to birth and got 18 years of support." Calculated under California's potentially slightly less generous formula or Wisconsin's? "We used the Wisconsin child support formula because the child lived in Wisconsin and the father had some contact with Wisconsin," said O'Halloran. Would the same lawsuit work today? "No," she responded. "Under the current law you can only collect child support from the time you initiate the action against the father. It has really changed people's incentives."
What if the mother marries someone extremely wealthy? "She will still get the same amount of child support from the doctor," says O'Halloran.
"We call it 'relocation'," says O'Halloran. "If mom has the majority of placement there is a protocol incorporated into the statue where she notifies dad of her intent to move. The burden of proof is on dad to prove to the court that the move is not in the best interests of the child." Who wins this dispute? "Mom has the edge. Mom will be able to move if she has a legitimate reason," says O'Halloran. What if there is 50/50 shared parenting? "The person wanting to move has the burden of proof in that case," says O'Halloran. "She will be expected to explain to the court how she can still facilitate a sharing of time. If she promises 8 weeks every summer, all vacations, and she will pay for airline tickets then she can probably move."
Wisconsin has detailed rules in its administrative code, Chapter DCF 150, that open the door to an enormous amount of litigation whenever anyone who owns a business or investment assets is sued for child support. While "gross income" is a potentially straightforward number when a W-2 wage earner is sued, there is a possibility for litigation on this subject:
“Income imputed based on earning capacity” means the amount of income that exceeds the parent’s actual income and represents the parent’s ability to earn, based on the parent’s education, training and recent work experience, earnings during previous periods, current physical and mental health, history of child care responsibilities as the parent with primary physical placement, and the availability of work in or near the parent’s community.
There will be an argument in front of the judge, who may have no work experience other than as an attorney or a government employee, regarding what a defendant could earn in any of the 840 occupations classified by the Bureau of Labor Statistics. Note that this definition gives parents an additional incentive to fight over custody since winning "primary physical placement" might excuse a parent from having to defendant against an argument that his or her income should be imputed at a higher level.
It gets more complicated when any kind of business is involved. Suppose that a defendant owns shares in a corporation and that corporation has more than $0 in its checking account?
Undistributed income of a corporation, including a closely–held corporation, or any partnership, including a limited or limited liability partnership, in which the parent has an ownership interest sufficient to individually exercise control or to access the earnings of the business, unless the income included is an asset under s. DCF 150.03 (4). In this paragraph:
a. “Undistributed income” means federal taxable income of the closely held corporation, partnership, or other entity plus depreciation claimed on the entity’s federal income tax return less a reasonable allowance for economic depreciation. b. A “reasonable allowance for economic depreciation” means the amount of depreciation on assets computed using the straight line method and useful lives
First the attorneys can argue about whether or not the share ownership is "sufficient [for the defendant] to individually exercise control or to access the earnings of the business." Then the attorneys and judge, none of whom may have any experience in business or in this type of business, can argue about the "useful lives" of various business assets, e.g., machine tools that nobody in the courtroom has any experience using.
Suppose that a person is straight-up self-employed? Now that person's income, and therefore child support liability, could be anywhere within a wide range of numbers available depending on the evidence, mood and personal biases of the judge, and quality of attorney argument. Here are a couple of excerpts from the child support law:
DETERMINING INCOME MODIFIED FOR BUSINESS EXPENSES.
In determining a parent’s monthly income available for child support under sub. (1), the court may adjust a parent’s gross income as follows:
(a) Adding wages paid to dependent household members.
(b) Adding undistributed income that meets the criteria in s. DCF 150.02 (13) (a) 9. and that the court determines is not reasonably necessary for the growth of the business. The parent shall have the burden of proof to show that any undistributed income is reasonably necessary for the growth of the business.
(c) Reducing gross income by the business expenses that the court determines are reasonably necessary for the production of that income or operation of the business and that may differ from the determination of allowable business expenses for tax purposes.
Suppose that the child support defendant is married (or remarried) and the business is run in cooperation with a spouse, e.g., a "mom-and-pop enterprise." If that spouse also gets paid from the business, regardless of how hard he or she works, the judge is encouraged to add those wages back into the defendant's income, though there could be an argument over whether this spouse is a "dependent household member," thus allowing a plaintiff to collect a percentage of two defendants' incomes. The judge, who has never operated this kind of business or maybe any business, will decide whether each particular expense is "necessary for the production of income." The self-employed defendant has the burden of proof.
Does this kind of "could've, should've, would've" litigation end if the business is sold and the proceeds invested in publicly traded stocks? No. Wisconsin encourages litigants to argue about how much a financial asset can produce.
(15) “Income imputed from assets” means the amount of income ascribed to assets that are unproductive and to which income has been diverted to avoid paying child support or from which income is necessary to maintain the child or children at the standard of living they would have if they were living with both parents, and that exceeds the actual income from the assets. ….
2. The parent’s assets are underproductive and at least one of the following applies:
a. The parent has diverted income into assets to avoid paying child support.
b. Income from the parent’s assets is necessary to maintain the child or children at the standard of living they would have had if they were living with both parents.
(b) The court shall impute income to assets by multiplying the total net value of the assets by the current 6−month treasury bill rate or any other rate that the court determines is reasonable and subtracting the actual income from the assets that was included as gross income...
The phrase that opens the door to unlimited litigation is "any other rate that the court determines is reasonable." For example, if the defendant has a fondness for technology stocks, which tend to pay low dividends, a plaintiff can argue that the money could've, should've, would've been invested in electric utility stocks, which tend to pay high dividends and therefore child support and alimony should be larger.
Under Wisconsin law, existing child support revenue and public assistance are excluded from a parent's gross income when calculating a new child support order. Here's part of the definition of "gross income."
All other income, whether taxable or not, except that gross income does not include any of the following:
a. Child support.
b. Foster care payments under s. 48.62, Stats.
c. Kinship care payments under s. 48.57 (3m) or (3n), Stats.
d. Public assistance benefits under ch. 49, Stats., except that child care subsidy payments under s. 49.155, Stats., shall be considered income to a child care provider.
e. Food stamps under 7 USC 2011 to 2036.
f. Cash benefits paid by counties under s. 59.53 (21), Stats.
g. Supplemental Security Income under 42 USC 1381 to 1383f and state supplemental payments under s. 49.77, Stats.
h. Payments made for social services or any other public assistance benefits.
So a person who receives $100,000 per year in child support, government-provided housing, a debit card for buying food, etc. is officially at a zero income level for the purposes of calculating child support owed or received. Due to Wisconsin's use of a percentage of obligor's income system this has little practical effect on a recipient except in a shared placement situation. On the other hand, for a child support defendant who is receiving substantial child support and public assistance, this section of the law provides a substantial protection.
There is an asymmetry in the laws of Wisconsin, as in most other states. For the purposes of receiving child support, public assistance benefits are not counted as "income." But for the purposes of receiving public assistance, child support is considered "income."
Wisconsin assigns different cash values to different children from the same parent. The "serial-family parent" section of the child support laws says "Adjust the monthly income available for child support by subtracting the support for the first legal obligation." Thus the first person to sue gets the most cash and each subsequent plaintiff gets less. The state includes an example in which the plaintiff in the first lawsuit over a single child gets 38 percent more than a follow-on plaintiff suing the same parent.
As in most other states, Wisconsin provides financial incentives to have children with multiple co-parents. If suing co-parents who earn $250,000 per year, three children with one co-parent yields $72,500 per year in tax-free child support while three children with three co-parents would yield $127,500 per year. This works out to a $1 million difference over 18 years.
Due to a combination of some of the most profitable child support numbers in the country and a "days for dollars" system, Wisconsin provides powerful financial incentives for parents to fight over a child's schedule. If a stay-at-home mother with two children sues a father with $400,000 per year in income, for example, she will get $100,000 per year in child support with "primary placement." If she were to agree to allow the children to be with their father more than 25 percent time, the "shared placement" portion of the guidelines kicks in. Now the father will pay her $100,000 times 1.5 times (proportion of time child is with the mother) or the original $100,000, whichever is less. If the mother were to agree to 50/50 placement, for example, her child support revenue would fall to $75,000 per year. In a 60/40 situation, she would get $90,000 per year. This could add up to as much as $450,000 over the period of time during which the children can yield child support.
We asked O'Halloran what she thought might change in the near (5-year) future in Wisconsin and also, based on her 25 years of experience, what she thought should be changed in order to make the system fairer to litigants and better for children.
"The item that probably needs the most attention is a more prospective way to deal with placement issues," said O'Halloran. "It should be possible to develop a plan, and have it approved by a court, to deal with the present but also with anticipated future events, including a child getting older. This will reduce litigation and increase buy-in from both parents. It would also reduce bad incentives that cause people to take entrenched positions for financial reasons." Is that likely to happen in the Legislature? "I'm not aware of a proposal but this is what we're doing in settlement," said O'Halloran. "The Bar is working with mental health providers to develop plans that we can incorporate in our agreements and pitch to judges for approval."
What about a statutory alimony formula or guidelines? "There should be better guidance on when a payor can retire," said O'Halloran. "Currently it is discretionary with the judge as to whether maintenance terminates at retirement. It is really hard to persuade a judge to terminate maintenance. I have had cases where judges scold alimony defendants who are 71 and tell them they can still work." Where do these cases start? "I represent a guy who works around the clock earning $700,000 per year. He and his ex-wife are in their mid-50s. He will be paying her close to 50 percent of his income for the rest of his working days while she does not work at all." What's happening in the capital? "There was a task force a couple of years ago to develop alimony guidelines. It imploded because everyone had such strong personal beliefs about what was right and wrong."
O'Halloran suggests tearing down the "days for dollars" system: "We need to remove the relationship between overnights and child support. It leads to litigation." She also would like to see judges have more flexibility in making child support awards for high-income payors: "I have a doctor paying $6,500 per month to a woman who needs $3,000 per month."
What about Professor Linda Nielsen's perspective (see the Citizens and Legislators chapter) that a court process that tries to identify the more important parent at the time of a divorce lawsuit is a fool's errand? "I agree, basically," said O'Halloran. "I represented a lawyer who, at the time that he was sued for divorce, was involved in a 6-month transaction. He could only spend some time with the children in the mornings and for part of the weekend. This was a temporary situation but because he could not facilitate overnight placement for a temporary period at the time of the lawsuit he fought an uphill battle to seek overnight placement once he became more available."
Like many other attorneys interviewed, O'Halloran would support "some sort" of income cap on being a child support plaintiff. This would eliminate the spectacle of a person earning many times the median household income in a state taking up a lot of court time to answer the question of who should pay for a child's hot dogs.
As in other states, O'Halloran reports that what cannot be obtained from a judge is often what brings parents together in negotiations. "Some negotiations happen when a father volunteers trust funds and college support," she said. [As noted above, Wisconsin judges cannot order a parent to pay for college.]
As in many other states, Wisconsin courts essentially determine a child's future at a non-evidentiary temporary hearing.
Due to the uncapped child support amounts, Wisconsin amply demonstrates what one of our attorneys noted: "In this country who you choose to have sex with has a much larger impact on your financial future than choosing a college major or career."
Wisconsin is more likely to push divorced parents toward a 50/50 schedule than many other states and provides fewer rewards for generating conflict with a co-parent.
Wisconsin may be somewhat stingy on alimony, very generous with child support, and has cash rewards for having children with multiple co-parents. Previous child support awards are not considered "income" to a victorious plaintiff. Thus, a profit-maximizing individual in Wisconsin would avoid marriage altogether and seek to have children via casual encounters with multiple high-income individuals.