Court Rules Income From Special Needs Trust Must Be Utilized In Calculating Trust Beneficiary’s Child Support Obligation

The parties in this case had a brief relationship which resulted in the birth of a daughter. Several months prior to the child’s birth, defendant/father, Marcos Cozze, Jr., was in a devastating motor vehicle accident which resulted in permanent brain damage. A lawsuit was filed on defendant’s behalf. More than three (3) years later, a settlement was reached in the net amount of $1,200,000. At the time of the settlement, defendant was a recipient of Medicaid and/or other public benefits based upon financial need. In order to maintain his eligibility for public benefits, defendant established a self-settled special needs trust and transferred the entire settlement amount to the trust. Thus, defendant was able to maintain his eligibility for Medicaid. Under the federal Medicaid statute, 42 U.S.C. §1396p(d)(4)(a), Congress permitted a Medicaid recipient to shield assets from consideration in determining the recipient’s eligibility for Medicaid by creating a special needs trust, provided that after the recipient died any funds remaining in the trust were paid to the State “up to the amount equal to the total medical assistance paid on behalf of the individual.”

Several months after the special needs trust was established, plaintiff/mother, Christina Mazyk, filed a lawsuit for child support against defendant, indicating that defendant received a settlement award from his personal injury lawsuit resulting from his motor vehicle accident. At the same time, plaintiff filed for welfare for her child and herself, and was found eligible for Temporary Assistance to Needy Families, a welfare program.

Although the trial judge noted the total absence of case law in New Jersey discussing the effect of a parent’s special needs trust on the parent’s child support obligation, the trial court ruled it was inequitable to allow Cozze to utilize the trust funds to pay for his own needs while the parties’ daughter was supported by the State through welfare benefits. As a result, the trial court ruled that “[Cozze’s] Special Needs … include support for his daughter.”

Cozze appealed. On appeal, Cozze argued that, under both federal and New Jersey law, the assets in a special needs trust cannot be used to support any person other than the beneficiary of the trust. However, the appellate court disagreed, and affirmed the trial court’s judgment. The appellate court ruled that, under New Jersey family law, “all parents’ resources should be considered available for support of the children,” and that “the distribution of [trust] assets is a resource which the trial judge appropriately considered available for [child] support.”

The case is annexed here – Mazyk v. Cozze (App. Div. December 11, 2012)