New Jersey Supreme Court Rules That Order Awarding Child Support To Disabled Child May Be Modified By Establishing Special Needs Trust For Child

In an opinion that breaks sharply with established practice, the New Jersey Supreme Court ruled that an application by a divorced spouse to pay child support for a disabled child into a special needs trust should be granted where the proponent shows that it is in child’s best interest to do so.  This is a major precedent because child support law otherwise would require outright payments of child support to the custodial parent. The Court affirmed denial of the application without prejudice by the lower courts because the proponent had not provided sufficient evidence of the child’s best interests. J.B. v. W.B., Docket No. A-111-11 (Supreme Ct., August 20, 2013)

The parties in this case were the divorced parents of an autistic son with special needs. When the child was fourteen years old, the parties divorced and negotiated a Property Settlement Agreement (PSA) in which plaintiff, J.B., agreed to pay $50,000 per year in child support to defendant, W.B., the custodial parent, along with unreimbursed medical expenses, to provide for medical benefits and maintain a $2.5 million insurance policy to secure child support in the event of J.B.’s death.  The parties agreed child support would continue until the disabled child was emancipated, but acknowledged that their disabled child would likely never be emancipated.  The parties deferred certain financial issues, such as the future support of their disabled son and the payment of post-high school education, and agreed that, if they were unable to reach agreement of the deferred issues in the future, either party had to the right to apply to the court for appropriate relief.

In 2009, the parties’ disabled child was twenty-one years old and expected to attend an out-of-state post-secondary school. J.B. filed an application asking the trial court (1) to establish a special needs trust, (2) to direct that his child support payments be paid to the Trust so that his child could become eligible for needs-based governmental benefits, and (3) to appoint a guardian ad litem on behalf of the child, among other relief. W.B. opposed the application, objecting to the proposed termination of direct child support payments to her as the custodial parent unless the child first became eligible for governmental benefits.

The trial court denied J.B.’s application, finding that plaintiff failed to demonstrate any change in circumstances warranting relief from the PSA. The court found it significant that the parties acknowledged that the child would have special needs in the future and would never be emancipated. J.B. appealed, and the Appellate Division affirmed. The appellate court agreed that the standard to apply to plaintiff’s application was changed circumstances, and that plaintiff failed to show that changed circumstances existed. The court also found that J.B. did not establish with certainty that the child would be eligible for governmental benefits if the child support was paid into a special needs trust.  The court also rejected plaintiff’s argument that the trial court should have appointed a guardian ad litem for the disabled child.

J.B. filed a petition for certification to the New Jersey Supreme Court, which was granted. In resolving the dispute, the Supreme Court created a new legal standard for courts to apply when considering applications to establish special needs trusts for the disabled children of divorcing parents. The Supreme Court found, first, that creation of special needs trusts may be an effective tool in planning for the financial support of a disabled child. Federal and state law permits the creation of special needs trusts so that disabled persons can maintain eligibility for needs-based government benefits such as Supplemental Security Income (SSI) and Medicaid. The assets in such trusts are not considered available assets for purposes of determining eligibility for needs-based government benefits.

Second, the Supreme Court also noted that, in the usual case as found by the lower courts, any party wishing to modify a negotiated PSA must meet the threshold showing of changed circumstances. However, when, as here, the parties to a PSA defer the resolution of certain issues until a future date, the guiding principal which courts should use in judging motions seeking to modify a PSA is the “best interest of the child” rather than “changed circumstances” standard. The Court was particularly eloquent in stating the principal as follows:

A special needs trust in conjunction with a thoughtful plan to gain eligibility and receipt of government benefits, including Medicaid, SSI, and Division of Developmental Disability (DDD) programs, permits a  family to provide health care, income, housing, and vocational services for their disabled, dependent child. The redirection of a child support obligation from a parent to a trust designed to meet the present and future needs of the dependent, disabled child should not be considered exceptional or extraordinary relief, if such a plan is in the best interests of the unemancipated child.

The Supreme Court went on to describe how lower courts should evaluate a claim by a parent of a disabled child that the payment of child support to a special needs trust rather than directly to the custodial parent is in the best interests of the child:

A parent seeking to alter a negotiated agreement for the financial support of a disabled child or seeking court approval of a plan to address deferred and unresolved issues concerning the support of a dependent, disabled child must present a specific plan and demonstrate how the proposed trust will benefit the disabled child. At a minimum, the Family Part judge must have a complete understanding of the current physical, psychological, educational, vocational, and recreational needs of the dependent, disabled child, the cost to support those needs, and the resources available to fund those needs. If the plan relies on access to government benefits, the Family Part judge must be presented with a specific plan that addresses, among other considerations, eligibility rules, the time it will take to gain eligibility, and how long it will take to access benefits once eligibility is established. The plan must address the means of defraying current costs without compromising the child’s benefits eligibility. The plan must also address the terms and conditions for disbursement of the corpus of the trust and designate a trustee.

The Supreme Court found that J.B.’s application failed to present a plan to the court and failed to show how the special needs trust would benefit the child.  J.B.’s claim that the creation of a special needs trust would benefit the child because he would be eligible for government benefits was little more than a “concept,” and also speculative.  The record did not address the fundamental question whether the funds paid for the child’s support were sufficient to meet all of his needs. The record merely suggested that gaining eligibility for government programs, such as Medicaid, SSI, and DDD, are better suited to meeting the long-term needs of A.B. As a result, the trial court could not properly evaluate whether a special needs trust furthers the best interests of the child, and the denial of plaintiff’s application was correct.

Finally, the Supreme Court found that the appointment of a guardian ad litem on behalf of a disabled child in the same circumstances as the child in the J.B. v. W.B. matter is within the discretion of the trial court.

The case is attached here – J.B. v. W.B.