How do I determine what percentage of a lump sum is to be deducted for arrearages?
Answer in detail:
Fisher Body v Lincoln National Bank & Trust Company of Fort Wayne, 563 N.E. 2nd 149 (Ind.App.1990) was a garnishment case that dealt with a lump sum severance payment. The court stated in that case that if the property of the defendant does not fall under the definition of "disposable earnings" the exemptions under 15 USC 1673 do not apply (this case dealt specifically with the garnishment exemptions of 15 USC 1973(a), the child support withholdings fall under 15 USC 1673(b) but the same logic applies). The court went on to further state that the definition of earnings and disposable earnings as used in 15 USC 1673 are limited to periodic payments of compensation and do not pertain to every asset that is traceable in some way to compensation. The purpose of the exemptions under 15 USC 1673 is to protect earnings of the individual that are needed to support the wage earner and their family on a week-to-week, month-to-month basis.
Therefore, if the payment is not tied to any periodic pay out then it is subject to 100% withholding, after taxes. For example, some employers will pay out 6wks of vacation time to an employee in lieu of the employee actually taking vacation time. Since they are getting 6wks of regular pay at one time the employer would take out 6wks of child support up to the amount of the arrearage. If however the employer gives a performance bonus of a flat $5000 then that entire amount would be subject to interception as it is not tied to periodic payments in any way. Lump sums not calculated based on weekly (or periodic pay period) are not disposable earnings and thus not subject to the exemptions of 15 U.S.C 1673(b).
Except for Workers Comp lump sums which never exceeds 50%.
STATE OF INDIANA - DEPARTMENT OF CHILD SERVICES