While we do not typically blog on cases outside of the family court, a recent law division case examined the child support lien statute, N.J.S.A. 2A:56.23b and its impact on settling a personal injury case and on settlements in general. The statute requires that a child support judgment search be performed to determine if a plaintiff in a given lawsuit has an outstanding child support obligation. If he or she does, then the statute requires that any “net proceeds of a settlement” (i.e. the proceeds left after the payment of attorney’s fees, witnesses’ fees, court costs, and other related costs associated with the lawsuit are deducted from the settlement award) in excess of $2,000 be paid in either full or partial satisfaction of the outstanding child support arrears. For example, let’s say $10,000 was owed in child support arrears, and a given plaintiff’s litigation costs totaled $10,000. If the plaintiff took a $20,000 settlement, then $10,000 would go to pay his litigation costs, $8,000 would go to pay off the child support arrears, and the plaintiff would get to keep $2,000 (but would still have $2,000 in child support arrears).
In Smiley v. Thomas, et. al. , the plaintiff sued the defendants for personal injury as a result of a car accident. He had also entered into a contingent fee agreement with his counsel, meaning that they agreed to take a fixed percentage of whatever the plaintiff was awarded in settlement or after a trial as their fee, rather than charging the plaintiff at their hourly rates.
Eventually, the defendants made a settlement offer of $25,000. The only problem was, after the child support judgment search was conducted pursuant to the statute, it was discovered that the plaintiff had outstanding child support arrears in the amount of $19,306.04. After satisfaction of the arrears and payment to his attorneys, the plaintiff would be left with $2,000; in fact, because his counsel fees and litigation costs exceeded the difference between the child support owed and the settlement amount, he would also be left with some unpaid child support arrears because he would have to pay counsel first. The plaintiff refused to accept the settlement if, at the end of the day, it meant that he would only walk away with $2,000.
But, evidently, the plaintiff’s attorney really wanted him to settle his case. So badly, in fact, that the attorney was willing to reduce his fee. So, the attorney asked the Court to modify the fee agreement accordingly; but, and here’s the rub, the attorney also asked the Court to call the money that the plaintiff would realize as a result of this reduction something other than “net settlement proceeds” so that they would not be subject to the child support lien by operation of law.
The Court weighed two important competing interests. On the one hand, Courts love settlements! Settlements make both parties feel happy (or equally unhappy) with the outcome and therefore (hopefully) curb future or continued litigation. On the other hand, our case law is replete with decisions affirming over and over again a parent’s obligation to financially support his or her children and there is plenty of case law carving out exceptions, identifying specific needs of the children that should be included in support, and generally providing guidance as to arrival at an appropriate child support arrangement (seriously, there are a lot of these decisions and we’ve blogged on them here, here, here, here, here, and many more times).
Ultimately, the Court determined that a parent’s obligation to financially support his or her children trumps the competing interest in promoting settlement. The Court found that it had the obligation to call a spade a spade. It did not, and found that it could not, call the money that the plaintiff would receive as a result of the reduced counsel fee award something other than “net proceeds from settlement” in order to help the plaintiff evade his child support obligation. To do so would be in direct contravention of the very purpose of the child support judgment lien statute.
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