There are any number of reasons why prepaid child support makes sense, including:
- You have a certain amount of cash now and are concerned about preserving it for your children.
- You may be traveling around the world and want to guarantee regular payments.
- You may be entering into new relationships and don’t want future circumstances to affect child support.
- You are unemployed, but want to maintain the standard of living established during the marriage.
- You want the peace of mind knowing your child support obligation is paid for in advance, so you can take investment risks.
You have money now. Maybe you are selling a big asset like your home, or you have set aside money in either retirement plans or a trust and want to use it to prepay child support. It’s kind of an interesting proposition, so can you do it?
The answer is, yes, you can do it. You can agree to prepay child support. We try to compute what the children’s needs are now, in addition to future needs such as a college obligation, the purchase of an automobile for the child, and related expenses. We also take into consideration the standard of living that the children are used to. The object is to come up with an amount for the benefit of the children that is agreeable to both parties, then take that amount and set it aside, with protections, so that it can be used for the children.
Sometimes the money for child support, health care expenses, and other needs is held in a trust. The details of how this works is contained in both the trust operating agreement and written into the Settlement Agreement.
Prepaid child support is also used by couples when there is no current income. At one time the couple made lots of money, but now they are not making any money. In the heyday, they made millions; now, not so much, but they have squirreled away some money and need to compute child support now, when they are making zero income. To do this, you can impute income to arrive at an amount for child support. Or you can agree to prepay child support. With some couples there hasn’t been income for some time, and they have no idea when income will begin again, so they are setting it aside for the benefit of their children now.
So is prepaid child support a myth? No, it is not a myth, but it is an option, one of many that we explore during the mediation process.