Opinion
No. 15/3649.
09-19-2017
Kathleen A. FLEMING n/k/a Kathleen A. O'Connell, Plaintiff, v. Todd S. FLEMING, Defendant.
Greg Mott, Esq., Davidson Fink, Rochester, Attorney for Plaintiff. Ella VanLoon Esq., Rochester, Attorney for Defendant.
Greg Mott, Esq., Davidson Fink, Rochester, Attorney for Plaintiff.
Ella VanLoon Esq., Rochester, Attorney for Defendant.
RICHARD A. DOLLINGER, J.
In this matter, the court faces a new challenge to determine whether an agreement, limiting a parent's child support obligation based on "earned income," should be affected by the payor parent receiving a substantial sum in a personal injury settlement. In November 2015, the couple signed a separation agreement which dictated that the couple's two very young children would primarily reside with their mother. In the agreement, the couple agreed that the husband, who was making only $300 per week, "shall not be required to pay any child support ... until such time as he is earning at the rate of $20,000 per year gross income." Upon earning at that rate, the husband was required to immediately notify the wife and he would then begin paying presumptive child support under the Child Support Standards Act. The agreement also provided that if the husband was self-employed, the provision to pay child support would only "take effect on January 1 of the year after he has earned $20,000 gross income." The couple acknowledged that they were deviating from the presumptive amounts of child support because of a disparity in the each party's income and the husband had just started a new job.
Three weeks after signing the agreement, the husband was involved in a motor vehicle accident in which he sustained personal injuries. Two weeks later, the judgment of divorce was signed, which included the child support provision: no child support to be paid "until such time as the father was earning at the rate of $20,000 per year gross income." In January 2017, the husband received a personal injury settlement in the amount of $56,893.29 for the motor vehicle accident. The wife then promptly moved for an order sequestering the funds (granted by the court) and requested that the funds be deposited in a bank account solely controlled by the wife to be used exclusively to pay child support at the rate of $800 per month. The husband responded, seeking to dismiss the application, release the sequestered funds, transfer primary residence of the children to the father, create a "right of first refusal" for either parent if the either parent was absent from their residence, and appoint an attorney for the children. The court eventually escrowed a portion of the personal injury settlement and heard argument on what portion, if any, of the personal injury award should be the basis for a child support calculation.
The starting line for this analysis is the text of the agreement. The father argues that the personal injury settlement funds "do not represent an earning at the rate of $20,000 per year gross income," as required by the agreement. The agreement does not define the term "earning" and there is no definition of "earning" in the Domestic Relations Law. In other separation agreements that use "earnings" or "earned income" as the touchstone for modification of child support, the parties have defined "earned income." See Seruya v. Seruya, 107 AD3d 972 (2nd Dept.2013) (earned income include salaries and bonuses, cannot not equity based compensation); E.D. v. J D., 42 Misc.3d 1204(A) (Sup.Ct. Westchester Cty.2013) (agreement stated that earned income included disability payments). The dictionary defines "earned income" as something "obtained (money) in return for labor or services" or to "gain or incur deservedly in return for one's behavior or achievements." Merriam–Webster On–Line Dictionary 2017. Under these definitions, the use of the phrase "earning at the rate" in the agreement connotes that the father would have been employed and paid wages at a rate of at least $20,000 before child support was triggered. Based on this definition, the personal injury settlement is not "earnings" as the dictionary provides. See also IRC § 104(a)(1) (Internal Revenue Code excludes from gross income both amounts recived in personal injury awards and "amounts received under [worker]'s compensation acts as compensation for personal injuries or sickness); Treasury Regulations 26 CFR 1.1348–3 (2017) (earned income includes "wages, salaries, professional fees, bonuses, amounts includible in gross income"); Klee v. Americas Best Bottling Co., Inc., 76 AD3d 544 (2nd Dept.2010) (personal injury awards not earned income); Matter of Beth V. v. New York State Off. of Children & Family Servs., 22 NY3d 80, 85 n. 1 (2013) (workers compensation payments for personal injuries).
But the agreement includes another phrase that must be read in conjunction with the word "earnings," it uses the phrase "gross income." The Domestic Relations Law and the Family Court Act do define "gross income." DRL § 240[1–b] (b)(5)(I) ; Family Ct. Act § 413(b)(5)(l). Under both statutes, gross income is the amount to be reproted on the "most recent federal income tax return." Id. But, both statutes go further than that, adding that at the discretion of the court, the court may "attribute or impute" income from such other sources as may be available to the parent, including, but not limited to, "non-income producing assets." DRL § 240[1–b] (b)(5)(iv)(A) ; Family Ct. Act § 413(b)(5)(iv)(A). Marlinski v. Marlinski, 111 AD3d 1268 (4th Dept.2013) (investment income); Matter of Rohme v. Burns, 92 AD3d 946 (2nd Dept.2012) (family support)
New York courts have held that the Domestic Relations Law permits a court to allocate a portion of a parent's non-recurring income to child support. Mirkin v. Mirkin, 43 AD3d 1115 (2nd Dept.2007). Personal injury settlements can be considered income in crafting a child support award. Christian v. Christian, 5 AD3d 765 (2nd Dept.2004) (personal injury settlement can be considered income and such a determination "was not precluded by the statute"); Krup v.. Fehr, 24 Misc.3d 1219(A) (Sup.Ct. Kings Cty.2009). The principle is especially persuasive where a portion of such award is intended to compensate the father for future wages he would not be able to earn due to an injury which occurred during the course of his employment. Christian v. Christian, 5 AD3d 765, 766 (2nd Dept.2004) ; accord Boyette v. Wilson, 291 A.D.2d 908, 908–909, (4th Dept.2002). In LaBombardi v. LaBombardi, 220 A.D.2d 642, 644 (2nd Dept.1995), the court held that it was proper to consider whether, in accordance with Domestic Relations Law section 240(1–b)(e), any portion of a $ 10,000.00 annuity payment which plaintiff expected to receive should be allocated to child support.
Other New York courts have gone even further. In Walker v. Gilbert, the appeals court upheld a Family Court determination that awarded the parent payee 17% of a total lump sum payment received by the payor parent as part of a personal injury award. As the court noted:
A lump-sum payment received by a parent in a tort action is not excluded from consideration in determining child support. One approach where a parent receives a nonrecurring large sum of money is to increase the weekly (or other periodic payment) support obligation by applying a reasonable rate of return to the funds received and imputing that amount as income. Indeed, this may be a preferred approach in most situations involving a lump-sum settlement. However, directing the payment of a portion of the nonrecurring sum received is not precluded by the statute (see Family Ct Act § 413 ) and may be appropriate under some circumstances.
Matter of Walker v. Gilbert, 39 AD3d 1112 (3rd Dept.2007). In affirming this conclusion, the court did note that there were extenuating circumstances underlying the lower court's discretion in distributing a lump sum portion of the award as child support. The child had extraordinary medical needs, the payor parent had virtually abandoned the child, and the lower court had concluded that the payor parent was dissipating the lump sum award. Id. at 1114. The Third Department affirmed a similar exercise of discretion in Matter of Ashley v. Worsell, 66 AD3d 1256 (3rd Dept.2009), in which the trial court awarded a percentage of the lump sum to be paid because the payor spouse had paid a bare minimum of support and did not use any portion of the funds to supplement the child's on-going support or care. The court held that there was "ample justification" to order a distribution in a lump sum, even though the court determined that the father had never failed to pay his support payments, and did not violate any prior court order. The court noted that the payor had paid "a bare minimum in support" (he had never paid more than $700 per year) and instead of using the funds to "supplement the child's care or ongoing support," the payor had used the money for trips, to finance his own expenses, and to construct a house. Id. at 1258. In an another context, the Second Department held that an inheritance, a "non-recurring payment from an extraordinary source," should have been considered child support because the Family Court Act and the Domestic Relations Law empowered trial courts to "allocate a portion of the same to child support in a manner to be determined by the court" even if the inheritance had already been spent. Cody v.. Evans–Cody, 291 A.D.2d 27 (2nd Dept.2001) ; see also Vural v. Vural, 130 AD3d 1459 (4th Dept 2015). Importantly, in Ashley v. Worsell, Walker v. Gilbert, and Cody v. Evans–Cody, the parent who received the injury settlement or inheritance had been ordered to pay support. There was no agreement underlying the support obligation. In the opposite context, where the payor parent had been meeting his support obligations and was paying arrears, the Third Department held that a personal injury settlement should not be considered income. Smith v. Smith, 91 AD3d 1083 (3rd Dept.2012). The Second Department examined an instance in which a parent received a lump sum payment for a disability pension claim. In Matter of Ludewig v. Ludewig, 151 AD3d 726 (2nd Dept.2017), the wife sought to recoup the Child Support Standards Act ("CSSA") presumptive child support amount out the entire award. The court held that the wife was only entitled to a percentage of the increase in the income available to the father and not a percentage of the entire award.
In short, in this case, the court's otherwise wide discretion is circumscribed by this couple's agreement. The agreement clearly suggests that the wife would not seek child support from the children's father if he had income of less than $20,000. From the husband's point of view, the cap means that he does not have to pay child support on his first $20,000 of income or, for that matter, on the first $20,000 of any resources otherwise available to him. From the wife's side, the $20,000 cap is designed to give the father, who was unemployed at the time of the agreement, a cushion to earn some income and get on his feet on the ground, but once he achieved that goal, he would pay child support on his entire income—including the $20,000. The goal of this provision was not to allow the father to accumulate assets and not share them with his children, but instead to give him the chance to gradually re-enter the workforce without requiring an immediate payment of child support.
In this instance, the husband has assets that now exceed the $20,000 limit and, consistent with the intention of the agreement, his personal injury award "gets his feet on the ground." In weighing the consequences of that award, this court cannot ignore the father's duty to support his children enshrined in both the Domestic Relations Law and the Family Court Act. See Matter of Oneida County Dept. of Social Servs. v. Christman, 125 AD3d 1409 (4th Dept.2015) ; Jones v. Jones, 109 AD3d 877 (2nd Dept.2013) ; S.B. v. J.R., 43 Misc.3d 171 (Sup.Ct. Monroe Cty.2013) ; Family Court Act § 413. While the agreement provides that the statutory duty is suspended by agreement of the couple while the husband earns less than $20,000 annually, this court must give a wide berth to the legislative mandate underlying the father's duty. In that respect, the agreement's language does not bar this court from considering other assets in calculating the father's support obligations. The agreement merely states that the father would not be obligated to pay child support so long as his "earned income" did not exceed $20,000. Furthermore, while the agreement can easily be interpreted as a waiver of the mother's right to collect child support until the father started earning $20,000, there is no evidence that she expressly waived her right to seek support if the father obtained additional resources. Any waiver by the mother to claim child support from other assets—as the Domestic Relations Law permits—would need to be a "knowing and voluntary abandonment of a known right." Matter of Hastie v. Tokle, 122 AD3d 1129 (3rd Dept.2014) ; Matter of Hinck v. Hinck, 113 AD3d 681 (2nd Dept.2014). There is no evidence that under the agreement that if the father received a large infusion of cash assets, which were not earned income, that the mother was prohibited from seeking child support based on his access to those assets or that he would be freed from his obligation to pay support for his children in accordance with the newly available assets.
In considering an exercise of discretion to use the personal injury settlement as a source for payment of child support, this court notes that this case differs factually from many of the cases cited above. Here, the court is not asked to fashion an order on a de novo basis. The couple decided to limit the husband's child support obligation in their agreement. The fact that the husband has not paid support—while perhaps causing the court's brow to furrow—it is justified by the agreement. The wife agreed to waive child support until the father was earning $20,000. This court notes that the personal injury settlement is not divided into damage segments—there is no indication that any portion of the award was for "lost, past or future wages." If the award contained such an allocation, then this court could more accurately determine what portion of the award was an "income substitute" and it might be in a better position to calculate the "income" available to child support calculation purposes. See e.g., Krup v. Fehr, 24 Misc.3d 1219(A) at 22. In Christian v. Christian, the award of child support resulted from the court's imputation of income to the recipient of the personal injury award after the recipient admitted that a portion of the award was to compensate him for lost future wages. 5 AD3d at 766. In the absence of any allocation between pain and suffering damages (which are not income) and lost wages (which are an income substitute), this court declines to reduce any portion of the settlement as a resource for the payment of support. Because there is no evidence of the wife's waiver of her right to seek support based on personal injury settlement, and to vindicate the underlying public policy mandating support of children by permitting support to be calculated from non-recurring assets, this court considers the personal injury settlement as an asset for purposes of the payment of child support.
The final question is what amount of the personal injury award should be paid as child support. Under one scenario, the total amount would be calculated as "income" and the father would pay 25% of that amount as child support in periodic monthly payments. But, it is unclear how long those payments would persist and the husband may, if the funds are soon depleted, seek a modification downward almost immediately and that suggestion ignores the $20,000 limit contained in the agreement. Under a second scenario, the court would impute a reasonable rate of return to the entire settlement—6%—and declare that amount as income and calculate the child support as 25% of that amount. However, that approach would produce only minimal support: the rate of return on the settlement would produce less than $4,000 annually and the child support would only be $1,000 annually. Furthermore, that approach would carry some incentive for the father to spend the corpus of the settlement quickly, as the amount of the available funds would decline, and the income generated on the fund would decline as well. Under a third scenario, the first $20,000 of the award would be shielded from any claim of child support—consistent with the intention of the agreement—and the remaining excess distribution would be subject to a claim for child support in a lump sum at 25% of the remaining funds. Finally, a fourth scenario simply suggests that 25% of the entire corpus should be paid to the wife as child support. This option recognizes that the children should share in the award and further acknowledges an important part of the agreement: while the child support did not commence until the father earns more than $20,000, once he does, the entire sum—including the first $20,000—is subject to the CSSA calculation. This court elects this latter approach because it recognizes that the father agreed that once he made more than $20,000, his entire income—or his available assets—would be subject to the payment of child support to benefit his children. The remainder of the settlement he can use as he deems fit to help get his feet on the ground without paying additional on-going support until he reaches the $20,000 earned income threshold set forth in the agreement.
Based on all these factors and exercising its discretion with a fealty to the legislative command for a parent to support a child, this court awards the wife 25% of the personal injury award as a lump sum payment for child support. Counsel are instructed to take the total proceeds, calculate 25% of that total and pay it to the wife as child support under the statute.