November 2010 Bar Bulletin
Lisa Dufour and Kim Schnuelle
Although our economy is barely shuffling along, there are still many ways to collect child support if the paying parent has assets. It is well known that, if the paying parent is working, the Division of Child Support (DCS) can collect child support (and maintenance, if child support is also owed) via wage garnishment.1
If there is a request for support enforcement services, DCS can collect child support whether or not the child receives public assistance.2 In addition, DCS can seize an obligor’s driver’s license, professional license or fishing/hunting license, and can garnish their bank or credit union accounts.3 DCS can also impound vehicles and boats, as well as foreclose homes, in its efforts to coerce payment.4 Finally, DCS can conduct financial institution data matches and seize funds from bank accounts for delinquent child support.5
In certain circumstances, DCS will refer an especially intractable case to the county prosecutor for judicial collection actions. While typically such county collection activities only involve contempt of court proceedings, approximately 10 years ago King County established a “special collections” practice for especially difficult cases or for situations with unusual fact patterns.
The authors served as senior deputy prosecutors in the King County Prosecuting Attorney (KCPA) Family Support Division for a combined total of more than 30 years before moving on to private practice. Much of our tenure at KCPA was spent litigating these types of special collection cases. Here, we hope to share our decades of expertise to assist attorneys practicing in this area with their efforts to collect unpaid support from highly resistant obligors.
Qualified Domestic Relations Order
Perhaps the most common and widely known alternate collection method is a Qualified Domestic Relations Order (QDRO) to seize all or a portion of an obligor’s retirement. If the paying parent has a poor payment history, child support can be collected from the paying parent’s retirement funds, including a 401K or monthly retirement income.6
QDROs are governed by both ERISA and the Internal Revenue Code.7 There are two basic types of pension/retirement plans — defined benefit plans and defined contribution plans (also known as Individual Account Plans) — and drafting procedures vary dramatically for each. Conveniently, there is no 50% limitation for collection from retirement funds as there is for collection from wages.
In King County, the motion for a QDRO is filed in family law court on the motions calendar. If the paying parent threatens to withdraw the funds before an order can be entered to disburse, then you can ask for an ex parte order to hold the funds. However, you will still need to file the motion and serve the obligor parent before the funds will be disbursed.
For efficiency and speed, it is prudent to ask the plan administrator to send you its proposed QDRO form and to start with that. Most retirement funds are extremely particular about the language of the QDRO.
Payment of taxes on the withdrawn funds is a consideration. If the recipient is a spouse or former spouse, any benefits paid are included as taxable gross income to the recipient.8 If the recipient is a child or dependent, however, as in the case with an underlying paternity action, tax liability will be assessed against the obligor.9
If the paying parent is to receive a large asset such as an inheritance or a home sale with equity, or has other assets, you can also ask for a bond for two years of future support.10 In Marriage of Olson, the county obtained a bond for two years’ future child support after the obligor parent refused to pay his child support.11
He had inherited a house and had given it to his girlfriend for the consideration of “love and affection.” The girlfriend had sold the home and bought a new home. At trial, the judge found the transfer was a fraud to avoid the child support obligation, ruled that proceeds of the sale had to be applied to back support, and awarded a bond for two years of future support.
The easiest way to arrange for payment of the two years of future support is to require that the funds be paid to the Division of Child Support. This technique avoids bank fees and the establishment of a separate account with possible resultant tax consequences. If done in this manner, DCS will hold the money and disburse funds each month as the child support becomes due.
Although the statute is specific that the bond can only be for two years, you can obtain a second bond when the first one expires or the funds are depleted.12 In two representative cases, the paying parent received funds from a trust every five years; another had funds from a foreclosure that were never disbursed by the Clerk’s Office.
While not common, the entry of a two-year bond is a very effective method for collection when the paying parent is receiving an asset or funds, and has very little earning potential or ability to pay child support in the future after the funds are dissipated.
Probate is where the big money can be found! The Baby Boom parents, frequently called the “Silent Generation,” have been slowly and quietly paying off their mortgages, putting money into blue-chip investments and retirement accounts, and acquiring other assets. As they pass away, they are leaving these assets to their children, who often are in their 40s and 50s and owe child support.
If your client tells you that the paying parent is due to receive funds through an inheritance, there are several ways to obtain the funds to satisfy back and future child support obligations. If they are to receive a house, you can ask DCS to place a lien on the property or you can file a lien in the county where the property is located. In probate, property transfers at the moment of death, so a lien can be placed after the owner dies, but before the paperwork has been filed naming the new owner.13 You can obtain copies of wills from the public files in the courthouse.
To determine if a probate is filed, you can search by the decedent’s name on the clerk’s website. If a probate action is discovered, file a notice of appearance and a claim against the estate, specifying how much the heir owes in child support. The receiving parent can request a printout of the case payment screen from DCS to use as evidence regarding the amount of child support paid, the back support debt and the current child support amount. If appropriate, you can also request a two-year bond.
Sometimes the personal representative (usually a relative of the heir and decedent), will cooperate and simply pay the funds to the receiving parent. If the personal representative does not want to cooperate without a court order, you should then file a motion to disburse funds within the probate. In King County, this motion is brought in ex parte.
If the probate has put the money in a trust, it is most likely a spendthrift trust. You cannot obtain money that is in the corpus of a spendthrift trust for payment of child support.14 However, it is not well known that you can obtain income payments from a trust.15 This statute was enacted by the Legislature for the sole purpose of collecting child support from trust income.
Liens, Foreclosures and Home Sales
Before the economy tanked, foreclosures of homes often resulted in surplus funds that could be attached for payment of child support. When a home is foreclosed, surplus funds are deposited with the clerk of the court.
This procedure allows all creditors to bring their own motion to disburse. The court process is used to determine the priority of liens. Taxes and child support have priority over almost everything else in this process.16
As home values have plunged over the last three years, however, very few recent foreclosures have resulted in surplus funds. As a result, this means of child support enforcement has substantially declined.
Uniform Fraudulent Transfer Act
Most attorneys do not consider whether or not property transfer by a child support obligor is or could be a fraudulent transfer.17 The Uniform Fraudulent Transfer Act (UFTA) specifies that a transfer of an asset for less than its value can be fraudulent if it is done for the purpose of avoiding payment of a debt and the transferor was insolvent at the time of the transfer.
The UFTA lists specific factors to consider in determining whether a transfer is fraudulent.18 It is fraudulent to transfer most of the funds in a community estate during dissolution if it is to avoid a looming civil action regarding a criminal act during the marriage.19 It is not fraudulent as to a specific debt if the transferring person does not believe they will incur the debt and transfers assets to repay other debt.20
Fraudulent transfers in the family law arena are usually between spouses to avoid debt owed to a third person or from a spouse to a third person to avoid a debt to the former spouse. There are no reported cases involving domestic partnerships yet, but such cases are likely on the horizon for the same types of transfers, i.e., either between the domestic partners to avoid a third party debt or to a third party to avoid the debt owed a domestic partner.
To bring an action to collect child support from assets of the paying party, you have to have specific information about the asset. Even though they are infrequently used for child support collection, supplemental proceedings can be a very effective method for discovery of assets.
Supplemental proceedings can be used as a discovery tool in questioning the debtor, and third parties can also be questioned if it is believed that they have information regarding the debtor’s assets.21 This means that if the paying parent has transferred all of his or her assets to their mother/father/girlfriend/boyfriend/wife/husband/business partner, the receiving person can be questioned through the supplemental proceeding process without the expense of conducting a deposition with a court reporter.
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In this weak and troubling economy, private attorneys should seriously consider using these unusual methods for child support and maintenance collection. Although the U.S. seems to be slowly emerging from the recent deep recession, joblessness and financial uncertainty remain high. In the current climate of anxiety and doubt, the ability to collect child support from as many sources as possible can thus be an economic lifesaver for many custodial parents.
1 See RCW §§ 26.23.010, .035(1)(b), .060.
2 RCW § 26.23.045(1)(b).
3 RCW §§ 74.20A.320, .330.
4 See RCW § 74.20A.140.
5 RCW § 74.20A.370.
6 Lisa Dufour and Kim Schnuelle, Using QDROs to Collect Child Support Payments, Washington State Bar News (May 2009).
7 26 U.S.C. § 414(p); 29 U.S.C. § 1056(d).
8 26 U.S.C. § 402(e)(1)(A); 26 U.S.C. § 402(b)(2).
9 For the interested practitioner, additional information regarding QDROs can be obtained from the authors’ article referenced in note 6.
10 RCW § 26.18.150.
11 In re Marriage of Olson, 100 Wn. App. 911, 999 P.2d 1286 (2000).
12 RCW § 26.18.150.
13 RCW § 11.04.250.
14 RCW § 6.32.250.
15 RCW § 11.96A.190.
16 RCW § 74.20A.060.
17 Uniform Fraudulent Transfer Act, RCW §§ 19.40.011–.904.
18 RCW § 19.20.041.
19 Clayton v. Wilson, 145 Wn. App. 86, 186 P.3d 348 (2008).
20 Sedwick v. Gwinn, 73 Wn. App. 879, 873 P.2d 528 (1994).
21 RCW § 6.32.030.