From revoking passports or driver’s licenses to threatening jail time, states have developed a few ways to convince non-custodial parents to pay their child support. One method that directly benefits you is charging interest on arrears.
Many states, 35 to be precise, charge interest on arrears. While it’s great to see so many states using this method to incentivize evasive dads, there is little consistency from state to state on how much interest, how interest is determined, and when it starts to accrue. The one consistent thing is that the arrears’ interest goes to you, not the state. Any interest from missed payments is owed to you on top of the original payments.
How Much Interest?
Since the interest does, in fact, go to you, the most important question becomes how much interest. First, you need to look at how each state determines interest on arrears. Some states have a fixed percentage rate written into law, while others have a changing rate that can be determined by whatever they see fit.
When states charge interest as a consistent percentage, it can be an annual or monthly rate. The annual rate can range from 2% a year in Oklahoma to 12% in Colorado. When states have a monthly interest rate, it tends to be 0.5%, like Massachusetts, to 1% a month, like Missouri, reaching 6-12% a year.
When looking at your state’s interest rate, it may be a simple interest rate or a compound interest rate. Most states have a simple interest rate, meaning they only charge interest on the missed payments. Any interest added to his debt isn’t counted toward new interest. If Bill owes Mary $5,000 in arrears, but $1,500 of it is interest, only $3,500 would be used to calculate interest, not the whole amount he owes.
Compound interest means that the total amount he owes you is used to calculate new interest. If Bill and Mary live in a state that uses compound interest, like Kentucky, the interest Bill owes will be calculated by the entire $5,000, not just the $3,500 off payments he actually missed.
Some states choose not to have a set interest rate but rather base it off outside factors. Nevada bases its interest rate on the rate of the largest bank in the state. Florida’s Chief Financial Officer decides their rate every year, and North Dakota determines its rate for the year from the Wall Street Journal the previous December. On the other hand, Ohio applies interest on a case-by-case basis if they determine that your ex willfully avoided payment.
Some states only charge interest on established judgments, not on any missed payment. The interests will begin compiling starting on the date the judgment is finalized. Florida, Kentucky, New York, Oregon, South Dakota, Washington, and Wyoming all require you to have a judgment before any interest can be added to the arrears.
So many child support cases aren’t contained to just one state. Eventually, you move for a better job, to take care of your family, or just want to live somewhere you can afford more space. In any case, you and your ex live in different states now, so how is the interest rate affected?
Like other interstate cases, the interest rate is determined by where the case is filed, the originating state. If your ex lives in a state like Indiana, where there isn’t interest on arrears, but you live in Virginia, where there is a 6% interest rate, he will be charged the 6%.
Even if you move from a state that charges interest like California to a state that doesn’t like Idaho, the interest built up doesn’t disappear. He still owes you that money, and crossing state lines doesn’t change that.
While many states charge interest on arrears, their interest rates are decreasing. Georgia has dropped its interest rate from 12 to 7 percent, Oklahoma has fallen from 10 to 2 percent, and New Mexico has dropped a staggering 9 percentage points from 15 to 4. On January 1st this year, Illinois stopped automatically charging interest on arrears, including arrears that had already accrued.
The interest is meant to deter non-custodial parents from missing payments. Recent changes show that states are more likely to make it easier for non-custodial parents than harder. Not one state that charges interest has increased their rate. This isn’t meant to scare you, but to let you know that states do change their laws regarding interest on arrears, and the changes don’t benefit custodial parents.
Interest on arrears has a very direct impact on you and your family because it results in more money in your pocket. By knowing your state’s laws regarding interest, you can potentially collect thousands more from your ex, especially if it’s been a while since he paid.