In an ideal world, every parent would make his or her child-support payments on time. However, this doesn't always happen, to the detriment of the child being supported. For this reason, courts charge interest on child-support arrears. Here are three things you should know about this interest:
It Varies By State
Not all states charge interest on child support arrears. Of the 35 states who do, the rates vary from as low as 4% to as high as 12%. In some states, such as Florida, there is no fixed rate of interest. Rather, the Department of Financial Services determines the new rate every year. Some states also have unique methods for calculating these interests. For example, Ohio bases its rate on the prevailing federal short-term rate (short-term AFR). In short, this issue is unique to your state, and a professional lawyer, like those at Tracy McMurtrie Luck & Associates, will advise you accordingly.
It's Not Just a Matter of Punishment
One of the purposes of making you pay interest on delayed child support payments is to punish you for your error. However, this isn't the only or main reason for the interest. It also acts as a deterrent or warning for those who would otherwise think of defaulting. For example, if you are paying a thousand dollars per month, and you are charged a 12% interest rate, it would add up to a huge amount of money after some time. Since the interest charged goes to the child, it also acts as a compensation for the child – making up for his or her loss of support.
You Have To Pay the Interest First
In many states that charge interest on child support arrears, you have to settle the interest first before clearing the backlog or making further payments. This is to ensure that the interest does not become a new debt on its own. Consider a situation in which you have not made the payments for the last six months. When you make the deposit, then the interest on that six-month default is calculated first before the rest of the money is spread for the backlog.
As you can see, it can quickly become a very complicated affair if you don't make regular child support payments to your former spouse. The calculations can be confusing too, and you are likely to need the involvement of a lawyer to help you handle them. The best thing to do is not to default on your child support in the first place.