Special Needs Trust and Child Support

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Divorcing parents are responsible to support their children until emancipation.  But what if you have a disabled child who is never likely to be emancipated?  Should a Special Needs Trust be created?

It is important to note that disabled children may be entitled to certain governmental benefits, which may be compromised if the child is eligible for child support from his or her parents.

In a recent New Jersey Supreme Court case, J.B. v. W.B., the divorced father of an autistic child sought to modify the Property Settlement Agreement reached between him and his Wife years earlier.  According to the Agreement, the father had an obligation to pay child support for this child, and it was acknowledged that the child may never be emancipated.  The Agreement deferred some financial issues relating to their son for a later date, and the father filed a motion to determine the allocation of financial responsibility for their son's post-secondary education and to establish a special needs trust.

The Lower Court denied the father's motion stating that the parties' agreement provided that he pay support and because his proposed trust plan lacked sufficient detail to allow the Court to make a decision about whether the trust would be in the best interests of the child.  The Appellate Division agreed with the Trial Court.

The Supreme Court of New Jersey addressed the case since it was its first opportunity to consider the role of a special needs trust for the benefit of an adult, unemancipated disabled child.

The Supreme Court felt that the parties' Agreement could be modified since maturation of a child and his or her changing needs may satisfy the threshold requirement for modification due to a change in circumstances.  In this particular case, the father didn't have to meet this requirement of change in circumstances since their Agreement deferred future financial arrangements for their child to a later date.  The best interests of the child should have been taken into consideration.

In this particular case, the Supreme Court agreed that the father did not provide enough information with regard to a special needs trust; however, the Court did set forth guidelines for future consideration regarding such trusts.  At a minimum, the Court must have a complete understanding of the following:

  1. The current physical, psychological, educational, vocational and recreational needs of the child.
  2. The cost to support those needs.
  3. The resources available to fund those needs.
  4. If the plan relies on government benefits, the eligibility rules, the time it will take to gain eligibility and how long it will take to access benefits once eligibility is established.
  5. The means of defraying costs without compromising the child's benefits' eligibility.
  6. The terms and conditions for disbursement from the trust and the designation of a trustee.

This is a complicated area of law, and if you have a special needs child, you should seek the appropriate legal advice to assure that your disabled child will benefit from all available government aid in addition to your financial support.

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The Division of a 401(k) Plan Through Equitable Distribution

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Aside from the marital residence, I find that my clients' 401(k) plans are the second largest asset to divide through equitable distribution.  With pension plans becoming all but extinct, individuals are depositing larger sums than ever into their 401(k) plans. 

 

Below are some tips regarding the division of this retirement asset through equitable distribution.

 

Tip One: Identify the Pre-Marital Portion of the Account

 

Notwithstanding some very limited exceptions, a spouse’s interest in your 401(k) plan begins on the date of your marriage.  It is likely that you were contributing to your plan prior to the marriage and it is important to identify the value of your account prior to the marriage.   With many retirement plans only keeping records for seven years, it may be in your best interest to print out an account statement that corresponds from the date of your marriage.

 

In addition to retaining the funds in the account prior to the marriage, the growth on this portion of the account is also excluded from equitable distribution.  With the compounding nature of interests within retirement accounts, it is important to remember to apply an appropriate growth rate the premarital portion of your account.  The growth rate can be established by reviewing the account’s historic investment performance and simply compounding this level of growth to the exempt portion of the asset.

 

Tip Two: Identify the Post-Complaint Portion of the Account

 

Similar to the pre-marital contribution into your retirement plan, in most scenarios, the post-Complaint deposits into your 401(k) account are usually exempt from equitable distribution.  With some divorce litigations spanning more than one year, the exclusion of these deposits can have a significant impact on your final equitable distribution scenario.

 

Tip Three: Make Sure to Take Into Account the Tax Status of the Asset

 

One of the key benefits of a 401(k) plan remains the pre-tax nature of the contributions.  This tax deferral is useful for many individuals to lover their effective tax liability.  However, it is a common mistake to utilize the value of a 401(k) plan to offset an after-tax asset such as the value of bank account.  Due to the differing tax classifications, comparing the two is similar to comparing apples to oranges.

 

If you are going to offset the value of your retirement account to a cash asset, you need to first reduce the value of the 401(k) plan value by your effective tax rate.  For purposes of example, if your effective tax rate is 25%, if you have $100,000 in your retirement account, the actual cash value of the account would need to be reduced by 25%, for a cash value of $75,000.  Cash assets (bank accounts, equity in a primary residence, etc.) have already been taxed; therefore you do not need to reduce the values of these assets for tax purposes.

 

With pension plans falling out of favor or many of our employers, the protection of your 401(k) assets are more important than ever.  I strongly recommend that you consult with an experienced matrimonial attorney prior to entering into an agreement to divide this asset through your divorce.

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Using Qualified Domestic Relations Orders (QDROs) to Collect Alimony and Child Support Arrears

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In the world of family law, few problems compare to a person’s failure to receive court-ordered alimony and/or child support on a regular, recurring basis.  The enforcement and collection of support arrears can be difficult, expensive and time consuming. One overlooked remedy is to tap a non-custodial parent’s retirement plan for unpaid support.  The technical term is a Qualified Domestic Relations Order or QDRO. Such QDROs apply to both Defined Benefit Plans (traditional pensions) and Defined Contribution Plans (401-K Plans and the like). Even if the non-custodial parent has lost his or her job, a QDRO remains available for support collection purposes.  At the same time, since every Plan is different, a court cannot instruct the Plan Administrator as to when or how to make a support distribution (for example, under some Plans a lump sum distribution is prohibited).

Since this area of family law is technical and detail oriented (including income tax consequences depending on how the QDRO is written), anyone seeking to utilize a QDRO as a means of collecting support arrears is well-advised to consult with an experienced family law attorney. 

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Teen Sues Parents for Child Support

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An interesting case in Morris County has taken hold of the headlines.  An 18-year-old brought her parents to Court on an emergency application to compel them to pay for child support and her private school and college tuition.

While the issue of child support and allocation of educational costs for children is often raised to the Court when there is a divorce, there is no precedence for such a case where the family is intact.

In this particular case, the daughter claimed she moved out of her parents' home because they wanted her to stop seeing her boyfriend.  Her parents stated that she refused to abide by their rules, and she was disrespectful to them.  There were many conflicting allegations brought by the parties with frequent disagreements over the facts.  After a two hour hearing, the Court did not grant the teen's request for emergency support but did schedule the case for another hearing towards the end of April.

It remains to be seen what the judge will do in this case.  Will the Court agree that married parents should pay their child financial support if their child moves out, or will it continue to be a matter for married parents to decide how they will support their children without Court intervention?

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Mediated Agreements Must Be in Writing

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Mediation is becoming more and more popular in divorce cases for several reasons:  (1) the cost of litigation is too high, (2) the parties wish to keep their animosity toward each other at a minimum, (3) the anxiety and pressure of fighting over these issues can be stressful, and (4) the courts compel the parties to go to mediation for parenting issues as well as for financial issues during the litigation process.     Therefore, if the parties can start out by mediating, they may be able to get divorced quicker and at a lesser expense, both financially and emotionally.

What you must know about mediation is that the mediator is not acting as a judge.  He or she is a facilitator and is also not there to give legal advice.  Each party should have their own lawyer in the wings that they can call or meet with to find out the legal ramifications of any agreements reached in mediation.

Once understandings are reached, the mediator will draft a Memorandum of Understanding (MOU), which will spell out in writing the tentative agreements reached by the parties on the relevant issues.  This MOU is not signed by the parties.  The parties then take that MOU to their respective attorneys to review it and to make sure each party understands what they have tentatively agreed to in relation to the law.  One of the attorneys will then draft a Marital Settlement Agreement (MSA) which sets forth those agreements, which MSA must be signed in order to be valid.

Sometimes attorneys are present at mediation, if invited, and it may be possible to reach a binding agreement at mediation.  If this is the case, then the agreement must be in writing and signed by the parties before mediation comes to a close.

If the parties reach an agreement at mediation and it is not reduced to writing and signed, the court will not enforce it.

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Uncontested Divorces and Equity

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In a case approved for publication on February 12, a family court judge ruled that simply because a person fails to participate in a divorce action, his or her legal rights are not trumped at final hearing.  In Clementi v. Clementi, (approved for publication), Mr. Clementi failed to respond to his wife’s Complaint for Divorce and was defaulted out of the case. Prior to the final hearing, Mr. Clementi was served with a “Notice of Final Judgment’ as required by New Jersey law in which Ms. Clementi sought to retain the mortgage- free marital residence free and clear of any claims by Mr. Clementi.  The Court ruled that simply because Mr. Clementi had ignored the Complaint and Notice of Final Judgment, this outcome was not a “given” but rather that Ms. Clementi still had to meet her burden of proof that the outcome was more fair than unfair. The Judge rescheduled the case so that a hearing could occur in such regard; however (and ironically), Mr. Clementi subsequently retained an attorney and the couple settled the case, including disposition of the marital residence, to their mutual satisfaction.

The “takeaway” from Clementi is that the court, consistent with its inherent equity jurisdiction, must adjudicate cases based upon the particular facts and applicable principles of law rather than simply grant whatever relief is sought against a defaulting party. 

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Where Should the Children Attend School?

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It is not uncommon for divorced parents to relocate within New Jersey with the children.  In the vast majority of cases, parents are able to resolve such matters as where the children will continue to attend school; however, there are, from time to time, circumstances where courts are called upon to determine the issue.

One such case, Beller v. Beller, was decided by the Appellate Division of the Superior Court on January 27, 2014.  In Beller,  Mr. Beller opposed his former wife’s enrollment of the parties’ two children in the school district where she had moved after the divorce. The proceedings began when Ms. Beller filed a motion seeking permission to transfer the children from the Denville school system to the Roxbury district. The trial judge permitted the transfer, a ruling from which Mr. Beller appealed.  Mr. Beller stated that the court had failed to apply the factors contained  in  the Appellate Division’s 1999 decision of Levine v. Levine; i.e. that there was a lack of proof that the child’s best interests was not being served in her present school system. 

The Appellate Division made short work of Mr. Beller’s appeal by ruling that Levine was inapplicable. Instead, the Court relied upon the testimony of the parties’ parent coordinator that, in her opinion, Mr. Beller had attempted to “alienate” Ms. Beller from the Denville school system, that Mr. Beller was in the process of a divorce from his new wife and that his circumstances were “less stable” than those of Ms. Beller.  The trial judge also interviewed the children which he obliquely referenced in his decision. Based on the above, the Appellate Division affirmed the trial judge’s ruling that the children be permitted to enroll in the Roxbury school system.

Beller is a particularly interesting case since it does not appear anyone testified that the children’ best interests were not being served in the Denville school system.  Levine remains the legal standard despite the above outcome.

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Domestic Violence and Due Process

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The issuance of a Domestic Violence Final Restraining Order carries a good deal of legal freight in terms of the proscribing a defendant’s conduct, providing for serious sanctions in the event of a violation of the Order and imposing important financial and non-financial obligations on a defendant.  Coupled with the statutory mandate that domestic violence cases be heard quickly following the issuance of a Temporary Restraining Order, such hearings may within ten days or sooner in some counties. This makes the defendant’s task of understanding his or her legal rights and mounting a proper defense very time sensitive.  How, in such circumstances, should a domestic violence defendant be expected to proceed?

In   S.C. v. A.C., decided by the Appellate Division on January 23, 2014, the Court held that a defendant’s constitutional  rights were violated by “rushing into a final hearing without giving him time to seek legal advice [and] prepare a full defense”. The case was fast-tracked even by domestic violence standards, with the hearing held one business day after the issuance of a Temporary Restraining Order. The charges against the defendant were serious, involving allegations of terroristic threats.  To compound problems, the victim was permitted to testify concerning other alleged prior acts of domestic violence at trial.  The appellate court found such events to have violated the defendant’s constitutional due process rights, reversed the decision and remanded the case for a new trial to afford the defendant  adequate time “ to prepare and present his defenses fully to the court”  pending which the Temporary Restraining Order was to remain in effect.

The S.C. v. A.C. decision represents a balancing of a victim’s need for temporary protection with a defendant’s right to understand and adequately defend the charges against him or her. As such, it is a worthy addition to the body of domestic violence law. 

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Reconciliation After Filing for Divorce: Success or Sorrow

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Filing the Complaint for Divorce often signifies the end of a marriage. It carries with it a certain stigma that the notion of love has gone and that a married couple will never be together again. However, it is not uncommon for parties in divorce to eventually reconcile and continue their marriage, whether because they did not want to get divorced before but felt forced in some way and/or they have decided to give the marriage another try.

 

Whatever the reason, reconciliation is possible, but parties should be wary of pitfalls that could ultimately hurt them if their attempt at reconciliation fails.

 

First, in many cases, the filing of the Complaint for Divorce is the date that, combined with the marriage date, is seen as the bookends of the marital period. Defining the marital period is very important, both for division of assets as well as for a support analysis.

 

If you and your spouse choose to attempt to reconcile after the Complaint was filed, the Complaint will be withdrawn. While this withdrawal is "without prejudice," meaning that you would not be precluded from later filing another Complaint for Divorce if needed, you may lose that cut-off date bookend and the marital period will be extended to the second Complaint. The consequences could be very detrimental.

 

The second issue, which is related to the first, is that sometimes a party wishes to inappropriately alter the various analyses in the divorce process under the guise of an attempt to reconcile. As stated above, if the Complaint for Divorce is withdrawn and the parties continue the marriage, the cut-off date for the marital period disappears.

 

However, this reconciliation in lieu of continuing the divorce litigation may also allow your spouse to avoid scrutiny while he/she inappropriately hides money or other assets, reduces or negates their income, or perform other actions in efforts to improve their outlook in the divorce. These actions, often referenced as "divorce planning," may lead to your ultimate detriment when you find out your spouse had no intentions in reconciliation after all, and you end up in a less advantageous position in the divorce.

 

When both parties are acting in good faith and wish to remain married for the right reasons, it could lead to success and happiness. However, you must be wary of the sad alternative.

 

Protect yourself! Often the signs of divorce planning may be visible to experienced counsel, and, if there is any doubt, you can be protected. A reconciliation agreement may be drafted which could counteract any potential negative consequences should your attempt at reconciliation go awry or if your spouse intends on "divorce planning."

 

Each agreement is unique and is specially tailored to the specific issues in each case. As with all blogs on this site, none of the above represents legal advice. If you encounter any of these issues, I strongly advise you to consult with experienced legal counsel immediately. 

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High Net Worth Divorce Issues

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When parties have significant net worth and income, there are usually a multitude of specific challenges that present themselves in divorce litigation.

 

One issue that frequently arises in high net worth and income cases concerns the division of assets through equitable distribution. In many high net worth cases, the parties are frequently recipients of a sizable inheritance or receive income as a beneficiary of a trust.  New Jersey case law provides that both inheritances or trust interests are not automatically subject to distribution to your soon-to-be ex-spouse.  As this is the case, many issues need to be examined to determine the true nature of the possible exemption of either an inheritance or trust from equitable distribution. 

 

The most relevant factor for purposes of equitable distribution of either an inheritance or trust interest remains whether or not the funds received from either instrument were “commingled”.  Funds are often deemed commingled when they moved from a separate account interest into a joint account or into a joint asset.  One example of commingling would be the deposit of inherited monies into a jointly held account or utilizing inherited funds to make improvements for a residence that is clearly jointly held by the parties. Courts will often look at such decisions as affirmative steps that classify once exempt monies into jointly held assets.

 

An additional issue that frequently arises in high net worth and income cases concerns the establishment of an appropriate child support obligation.  The New Jersey Child Support Guidelines only establish a support amount for parties that earn less than a combined net yearly income of $187,200.00.  Once the Child Support Guidelines reach their annual net income threshold, the Court has the discretion to enter an appropriate amount of child support that is commensurate with the additional financial needs of the children. 

 

For example, if a child has specific medical needs or is involved in an extracurricular activity that requires a significant financial commitment, the Court will factor this in when assigning a supplemental child support award.  It is important to note that both parties will more than likely need to recreate and isolate a budget for the children’s portion of the family expenses to properly development a child support obligation when the parties’ combined net income exceeds the threshold amount of $187,200.00 per year.

 

These are just two brief and limited examples of issues that may arise in high net worth divorces.  Our family law group at Stark & Stark has decades of experience of handling the complexities and challenges that present themselves in high net worth divorces.  With our experience and relationships with the most qualified financial experts, trusting our firm to represent you in your divorce matter will ensure that you receive the best results.  

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Older Entries

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