What Is A Cost Of Living Adjustment (COLA) Clause?
When there is a divorce is it common for the maintenance (spousal support, child support) agreement to contain a Cost of Living Adjustment (COLA) provision. A Cost of Living Adjustment is mandatory in some states, but not in all, and specific requirements for such a provision depend on the jurisdiction. However, in most jurisdictions, the clause must contain the date the adjustment will become effective and the COLA index that will be applied. Most jurisdictions also require the clause to consider the likelihood of income, increase or decrease, of the paying party. The party who is paying the increase will also have an opportunity to contest the adjustment (by a motion to the court) before a Cost of Living Adjustment is applied.
The intent of a Cost of Living Adjustment clause is to increase support (spousal or child) as the costs of living rise, without having to make a motion to the court for future increases (post-divorce modification). Without such a clause, a party receiving maintenance must make a motion for an increase in payment to balance his or her growing financial needs. However, having a COLA clause does not take away a party’s right to make a motion for modification of the maintenance agreement due to a change in circumstances.
Even if the divorcing couple includes a Cost of Living Adjustment clause in their maintenance agreement, the court may not approve it. The court has discretion to deny a COLA provision in a marital dissolution if the agreement fails to meet, or meets, certain criteria. Some conditions may include if the agreement already contains incremental increases in payment over a specified period of time, if the Cost of Living Adjustment option has been voluntarily waived by the parties or the court determines that, based on the party’s income, an increase in payments would not be feasible.
DOES IT AFFECT COST OF LIVING ADJUSTMENTS IF A PARENT LOSES HIS OR HER JOB OR FAILS TO PAY CHILD SUPPORT?
If the party making support payments has a reduction in his or her income, it is possible to file a motion with the court to reduce the amount of support payments and modify the original maintenance/child support agreement. Another issue may be if the original agreement did not include a limit to the COLA increases, the limit may be either monetary or a period of time. This may be necessary in cases where the agreement has a long duration, such as in the case of a young child where the increases would last many years, or if increased payments are unlikely based on the party’s occupation.
Correspondingly, if a party fails to pay child support, this does not automatically suspend the Cost of Living Adjustment increase. The two are separate issues. If a party cannot pay the COLA increase due to a change in circumstances, he or she will have to petition the court to reduce the amount of payments or modify the agreement. Similarly, if child support payments are not being paid, the party not receiving the payments will have to file a claim in court for failure to pay the Cost of Living Adjustment increase and failure to pay child support. For any questions regarding this procedure, seek an attorney in your jurisdiction.
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