The story of Zoe Childs, a victim of a horrific drunk driving accident, was in the headlines about a decade ago when the Supreme Court of Canada decided hosts of parties cannot be held liable for serving alcohol to a person who goes on to cause a car crash.
Childs, who was 17 when a 1999 accident left her paralyzed from the waist down, was back in court recently, this time to determine how her structured settlement funds would be considered following her separation from her husband, Ryan Phelps.
A Superior Court judge found Child’s structured settlement income will not be used to pay spousal support, but he decided it’s fair game to factor in the lump sum monies for what’s deemed extraordinary expenses for the children of her marriage.
To leave out Child’s structured settlement payments while calculating extraordinary expenses under s. 7 of the Federal Child Support Guidelines would be “unfair” to Phelps, Justice Michael Quigley said.
After the accident, Childs recovered more than $300,000 in cash from various settlements, and became the beneficiary of two structured settlements. One of the structured settlements, in the amount of $850,000, pays her approximately $4,000 per month, and she receives $20,000 annually from a second one with a value of $400,000, the court said.
Childs and Phelps, who separated in 2013, have three children together. The court said both parents “testified as to the desire to involve the children in extracurricular activities,” an expense that’s considered extraordinary under s. 7 of the Federal Child Support Guidelines, Quigley wrote.
“The Section 7 expenses incurred for 2014 amounted to $16,826.15. I find no difficulty in concluding that the Section 7 expenses incurred in 2014, and continue to be incurred for the children, are beyond the scope of parents with modest incomes. No doubt, these monies continue to be expended because of the substantial tax-free monies accruing to the respondent [Childs],” Quigley said.
“Any calculation of income for the purpose of Section 7 expenses of necessity will have to be arbitrary. To calculate Section 7 expenses based on the income of the applicant, $18,000.00 (2013) and $34,525.00 (2014), and only the taxable income of the respondent (ignoring the respondent’s structured settlements) would be grossly unfair to the applicant and not affordable by him,” the judge also said.
The way structured settlements are considered following separation often depends on the specific facts of the case, says Barry Chobotar, managing partner at Henderson Structured Settlements LP.
In this case, Child’s structured settlement income “was such a large amount compared to the amount being made by the applicant that it looks like the court felt the mother, the respondent, should contribute to what they’re calling s. 7 expenses for extracurricular activities,” Chobotar says. “You’ve got expenses of almost $17,000 and the applicant, or the father, only making $34,000,” he adds.
But, in spite of that finding, Quigley declined to grant the husband’s request for $10,000 in spousal support for two years following the separation.
“Although the respondent had during those years in excess of $80,000.00 being deposited into her bank account, I am not persuaded that any of that amount would qualify as income for the purpose of calculating spousal support payable by her,” the judge said. “Therefore, ... an order shall go dismissing the applicant’s claim for spousal support for the years 2013 and 2014.”
The court decided not to use Childs’ settlement funds for spousal support likely because those funds were never meant to replace lost income, Chobotar says. At the time of her accident, Childs was an unemployed student.
In his experience, cases where spousal support was garnished from structured settlements involved some form of economic loss on the part of the accident victim, Chobotar says, adding that the court in this case also had an expert testimony that said Childs’ recovery following her accident was in fact less than what she required for her medical needs.
“That would have played into why they wouldn’t have considered [her structured settlement income] for spousal support,” Chobotar says.
In Jennifer Lyn Mason v. Daniel Mark Mason, a judge found that only the portion of the father’s structured settlement that was meant to compensate him for lost income would go into spousal and child support. In that case, it didn’t matter that the mother argued that the family relied on the whole of the father’s income from the structured settlement to support their lifestyle and his income should not be reduced for purposes of calculating support.
Historically, people rarely considered whether structured settlement payments were intended for loss of income or medical needs when assessing spousal support obligations, says John Rousseau, principal at McKellar Structured Settlements. “It’s being given more attention these days,” he says.
Rousseau notes it’s not surprising the court decided to use the settlement funds toward the children’s extracurricular activities in Childs’ case. While spousal support obligation is often contingent on whether the funds are compensating an accident victim for loss of income, he says the “sympathies are a little different” when it comes to children.
“Where children are concerned, I always tell people when I’m out talking to them basically that all bets are off. The court is going to ensure the best interest of the child,” Rousseau says.
What’s clear, according to Rousseau, is that having a structured settlement payment puts accident victims in a better position than they would have been if they simply had money sitting in the bank during a matrimonial breakdown.
“From a practical perspective, if the money is in the bank, there’s a serious danger that it’s going to be accessed and spent by the future ex-spouse,” Rousseau says. “If the money is in the bank account [and] if it’s not properly accounted for, it may be viewed as an asset and subject to division. With [a structured settlement], it’s clear that it’s not and it’s clear that the source of the money is the personal injury settlement.”
If a claimant wants to receive a portion of his or her settlement in non-structured lump sum payments, it’s best if those payments come from the portion of the settlement compensating them for loss of income, says Kyla Baxter, president of Baxter Structures.
“Where possible, the minutes of settlement can then reflect that the structured portion is comprised of the general damages and the plaintiff’s future care costs, thereby protecting the structure payments in the unfortunate event of a dissolution of a marriage,” she says.