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ESCALATION CLAUSES ARE ALLOWED BY AGREEMENT; A DIFFERENT STANDARD THAN IF COURT ORDERED

An escalation clause is a provision in an order or agreement that automatically changes a payment based upon changes in circumstances. This allows for changes without having to go back to attorneys or the court. The most frequent use of such clauses is in child support orders. There are two different standards for enforcing these clauses: one for court orders made by a judge, and the other for agreements made by the parties and incorporated in an order. For Court orders, escalation clauses must meet the following strict requirements. The Order should:
  1. specify with certainty the particular cost of living or consumer price index which is to be utilized (there are many);
  2. show the applicable ratio (present CPI is to ascertainable CPI as present award is to future award);
  3. calculate the base figure as of the date of judgment;
  4. establish frequency of adjustments (we suggest nothing less than yearly); and
  5. establish an effective date for each adjustment (e.g. anniversary of date of judgment).
Parties may agree to escalation clauses that do more than the law requires of them. When they do, they will be held to the higher standard they agreed to. Consequently, escalation clauses which might not meet the criteria set forth for courts will be enforced if they are clear. One of the ways the Court might determine what the parties mean is to look at how they acted. In the recent case of CAPLINGER v. CAPLINGER, NO. 2011-CA-01278-COA (Decided 2/12/13), the court observed that the payor of support had voluntarily increased his support at one point after the divorce as provided in the agreement. This led to his being held in contempt for failing to make the increases required during later years.