Corporations Can Pay Child Support Too
Most corporate attorneys assume that divorce law has little impact on their practices. However, an Illinois statute drafted primarily to assist recipients of child support, coupled with a 2007 Illinois Supreme Court case and a 2008 2nd District Appellate Court case, suggest otherwise. Your client or company may pay millions of dollars in penalties if it fails to follow the letter of the law.
Illinois law allows child support to be garnished from the paying parent’s wages. Generally, an attorney for a parent receiving child support serves a Uniform Order for Support, along with a Notice to Withhold Income for Support, on the employer of the parent obligated to pay support. The employer withholds the child support from its employee’s wages and remits it to the State Disbursement Unit (“SDU”). The SDU acts as a clearinghouse, keeping track of support received, and remitting it to the recipient of the support.
Under the Illinois Withholding Act (“Act”) , employers have certain affirmative obligations and, if they knowingly fail to withhold or pay over child support within the time limits set forth in the Act, penalties may be imposed. The Act provides in part that:
“It shall be the duty of any payor who has been served with an income withholding notice to deduct and pay over income as provided in this Section. The payor shall deduct the amount designated in the income withholding notice, * * * beginning no later than the next payment of income which is payable or creditable to the obligor that occurs 14 days following the date the income withholding notice was mailed * * *. The payor shall pay the amount withheld to the State Disbursement Unit within 7 business days after the date the amount would (but for the duty to withhold income) have been paid or credited to the obligor. If the payor knowingly fails to withhold the amount designated in the income withholding notice or to pay any amount withheld to the State Disbursement Unit within 7 business days after the date the amount would have been paid or credited to the obligor, then the payor shall pay a penalty of $100 for each day that the amount designated in the income withholding notice (whether or not withheld by the payor) is not paid to the State Disbursement Unit after the period of 7 business days has expired. The failure of a payor, on more than one occasion, to pay amounts withheld to the State Disbursement Unit within 7 business days after the date the amount would have been paid or credited to the obligor creates a presumption that the payor knowingly failed to pay over the amounts. This penalty may be collected in a civil action which may be brought against the payor in favor of the obligee or public office. * * * For purposes of this Act, a withheld amount shall be considered paid by a payor on the date it is mailed by the payor * *
In last year’s Supreme Court case of In Re the Marriage of Miller the constitutionality of the penalty provision of the Act was upheld. In that case, Lenora and Harold Miller were divorced in Cook County in May 2001. Harold was ordered to pay child support in the amount of $82 per week. Harold’s employer, who happened to be his father, received a Notice to Withhold Income for Support via certified mail. The Notice informed the employer that he was to withhold the support, forward same to the SDU within 7 days of the pay date and, if he failed to withhold or pay over the support, he may be liable for the amount of support that should have been withheld plus penalties of $100 per day.
From the outset, Harold’s employer failed to timely pay the support payments to the SDU. A letter from Lenora’s attorney, reminding the employer of the penalty provisions of the Act, prompted compliance. However, the employer soon became delinquent again. Lenora filed a motion requesting that the employer be added as a third party defendant, which was granted in March 2002. At that time, Lenora filed a complaint against Harold’s employer alleging that there was an arrearage of $2,050.
More than two years passed before the trial court rendered its ruling in October 2004. The employer argued that: i) Lenora was dilatory in filing her complaint and should be barred from recovery because she was guilty of laches; and ii) the Act was unconstitutional as applied to him since the penalty was not commensurate to the offense, resulting in a violation of his due process rights. Both arguments failed and the trial court imposed a penalty of $1,172,100.
How did a $100 per day penalty grow to over a million dollars in 2 ½ years? The penalty is assessed each time a support payment comes due and is not paid. “A separate violation occurs each time an employer knowingly fails to remit an amount it has withheld from an employee’s paycheck.” In the Miller case, the employer was often weeks in arrears and, therefore, subject to multiple $100 penalties on any given day, resulting in 11,721 violations of the Act.
The Appellate Court, with dissent, overturned the penalty . The majority reasoned that the penalty was disproportionate to the offense and, therefore, unreasonable. The case was remanded back to the circuit court to determine a proper penalty. The Supreme Court reversed the judgment of the appellate court and affirmed the circuit court’s judgment.
Essentially, the employer accepted that the Act was constitutional on its face. However, he argued that the penalty, as applied to him, bore no reasonable relation to his conduct and the amount of support owed. In essence he claimed, “The punishment does not fit the crime.” The Supreme Court acknowledged that, if a penalty is oppressive to the point that it is disproportionate to the offense and does not further a legitimate government purpose, it will violate the due process clause. However, it found such was not the case, and the penalty was upheld.
The Supreme Court commented that the employer knew of his obligation and the penalty and that he failed to comply on numerous occasions, even after being reminded by the recipient’s attorney and court orders requiring him to remain current. The court stated that the employer could have avoided the penalty by simply complying with the statute. The employer controlled the amount of the penalty, and therefore, he cannot complain that it is too severe. The court reasoned that, “Based on the important societal interests at stake and the concomitant need for adherence to the Withholding Act, coupled with the egregiousness of Miller’s (the employer) conduct, we cannot say that the statute is unconstitutional as applied to Miller.”
In May, the Appellate Court in the Second District upheld a $369,000 penalty against a Mississippi company. In the Gulla case, the ex-husband’s obligation to pay current child support had terminated. However, an order was entered setting arrears of $123,114 and requiring the ex-husband to pay $3,000 per month until paid off. The ex-husband’s employer was served with a Notice to Withhold Income for Support issued by the court instructing the employer of its obligation to withhold income for support and to remit it to the SDU.
When the support arrears were not withheld from the ex-husband’s income, the ex-wife filed a petition for rule to show cause against the employer. In the employer’s initial response to the petition, it alleged that the Illinois trial court lacked jurisdiction over it because it was a Mississippi corporation with no contacts with Illinois and, therefore, the petition for rule should be dismissed. The Appellate Court noted that federal law requires that each state grant full faith and credit to the child support withholding provisions of any state. Also, Mississippi law provides that: “An income-withholding order issued in another state may be sent by or on behalf of the obligee, or by the support enforcement agency to the person defined as the obligor’s employer under Sections 93-11-101 through 93-11-119, without first filing a petition or comparable pleading or registering the order with a tribunal of this state.” In addition, the Mississippi Code states that “(t)he employer shall treat an income-withholding order issued in another state which appears regular on its face as if it had been issued by a tribunal of this state.” The trial court properly ruled that based upon both federal and Mississippi law, it did have jurisdiction over the Mississippi employer.
After the trial court ruled it had jurisdiction, the employer filed a subsequent response to the petition for rule claiming it had acted in good faith to comply with the Notice. It alleged that the ex-husband’s attorney had informed it that a motion to vacate the order was being filed and that said motion was not going to be contested by the ex-wife. Additionally, the employer stated it was subsequently informed that the parties settled their case. After receiving a petition for rule to show cause against the employer, it began withholding 50% of the ex-husband’s income, which was less than the $3,000 per month he was obligated to pay. However, it was the maximum amount it could withhold under Mississippi law. Ultimately, the trial court ordered the employer to pay $7,855 as the amount it should have withheld from the ex-husband’s wages plus a penalty of $369,000.
The employer appealed, arguing that it was inequitable to find it knowingly failed to withhold the amount set forth in the Notice. In support of its contention, the employer stated that, since the amount ordered withheld from the wages was more than the ex-husband was paid, it was impossible to comply with the Notice. Also, the employer reasoned that it properly relied on the ex-husband’s representation that the arrearage issues were settled and, once it learned they were not, it began to immediately withhold support from the ex-husband’s income.
The Appellate Court found that the Notice had been sent in accordance with the statutory requirements, including an explanation that if the amount to be withheld exceeded the amount allowed by Mississippi, the employer should withhold the amount allowed under its laws. Notwithstanding, the employer failed to withhold any support from the date the Notice was sent in March 2006 until November 2006. The appellate court found the Notice to be clear and that the employer could not rebut the presumption that it knowingly failed to withhold and pay over the support. As a result, it held the trial court correctly assessed the penalty against the employer.
The employer also argued the Act was unconstitutional because the penalty was disproportionate to the violation. However, the court summarily dismissed that argument by simply stating that issue was previously considered and rejected by the Supreme Court in the Miller case.
In conclusion, a corporation served with a Notice to Withhold Income for Support must assure that it has controls in place to follow the Act. Failure to withhold the support and pay it over it to the SDU within the statutory time limits may subject a company to penalties that can add up to substantial amounts over a relatively short period of time.
Chicago lawyer Michael C. Craven represents clients in all areas of family law including divorce, property division, custody, child support, paternity, domestic violence, and the preparation of prenuptial and postnuptial agreements. He draws on his previous experience as a tax attorney to negotiate and litigate complex financial issues in matrimonial cases. He can be reached at (312) 621-9700 or via email at [email protected]. View his Divorce Magazine online profile.