Defense Digest

New Obligations When Paying Settlements, Verdicts Or Awards: Child Support Obligations And Senate Bill 1205

Pennsylvanians, like other Americans, have in recent years been averaging a 50 percent divorce rate. Divorces often result in child support obligations. Under applicable law in Pennsylvania, the Department of Public Welfare is tasked with the responsibility of collecting past due child support payments. In a situation where a parent owes past due child support, a lien is created, and arrears become the property of the Department of Public Welfare. That Department is authorized by 23 Pa.C.S.A. § 4302 to pursue recovery of the arrears from any form of income. Income for the purposes of such recovery includes personal injury and tort settlements, judgments and awards. Under Section 4305(b)(10), the Domestic Relations Section of the Family Court has authority to intercept and seize judgments, awards and settlements. Where the Department pursues reimbursement through formal litigation, it is represented by the District Attorney's Office in the appropriate county. Claims brought for reimbursement in this fashion are brought on behalf of both the Department of Public Welfare and the parent to whom support is owed.

The Pennsylvania Legislature has stepped into this arena recently and created an entirely new statutory framework to ensure that child support arrears are paid before a plaintiff or claimant in a personal injury or workers' compensation proceeding receives an award or settlement exceeding $5,000. Senate Bill 1205 was introduced April 27, 2006, and, after a substantial re-writing, was passed on June 22, 2006, by unanimous vote in the Senate. The House, by a similarly unanimous vote on June 30, 2006, passed the Bill onto the Governor, who signed it on July 7, 2006. As enacted, it is Act 109 of 2006. By its provisions, Act 109 became effective 60 days after being signed by the Governor. Thus, the effective date of the Act is September 5, 2006.

Act 109 amends the Domestic Relation Code by adding a new Section, Section 4308.1, and authorizes the Department of Public Welfare to intercept past due child support payments from lump sum monetary verdicts, awards or settlements paid by defendants, insurers and workers' compensation sources. In the wake of Act 109, an overdue child support obligation gives rise to an automatic lien by operation of law against the net proceeds of any monetary recovery where those proceeds exceed a threshold of $5,000. Until an outstanding child support obligation is satisfied, no payments can be made and there is an automatic stay arising from the lien equal to the amount of the past due child support. This applies with equal force to awards and settlements being paid for tort claims and workers' compensation claims alike.

The obligations imposed by Act 109 depend primarily on whether or not the plaintiff (or claimant) is represented by counsel. If the plaintiff is represented, he must provide his attorney with a statement containing his name, address, date of birth, social security number, and written documentation as to whether arrears exist from the Pennsylvania child support enforcement system website (such documentation must be provided whether or not arrears exist). The attorney must then independently obtain a lien report from the website, and the report must be dated within 20 days of when the release is delivered. The address for the website is: www.humanservices.state.pa.us/csws. There are no charges associated with searching the website. If arrears exist, the attorney must make payment in the amount of the lien to the Welfare Department's Disbursement Unit.

If the plaintiff is not represented, he must provide the defendant or insurer with the statement containing his name, address, date of birth, social security number, and written documentation as to whether arrears exist from the Pennsylvania child support enforcement system website (again, such documentation must be provided whether or not arrears exist). The defendant or insurer must withhold any arrears from the verdict or settlement payment and pay the arrears to the Welfare Department's Disbursement Unit. If it is determined that an unrepresented plaintiff owes arrears, defendants or insurers may wish to advise the plaintiff of the potential to consult with counsel, especially if the arrears are equal to or exceed the verdict or settlement payment.

In situations where there is a dispute concerning the amount of past due child support, the disputed amount must be placed in escrow with the Pennsylvania State Disbursement Unit. That Unit has a dispute resolution system designed to resolve such conflicts.

In the case of employers making workers' compensation payments, there is a threshold requirement that the employer have at least 15 employees before being obligated to make electronic payments to the Disbursement Unit. Employers who fail to comply with the provisions of the Act can face a civil penalty of up to $1,000 per violation.

Those charged with responsibilities under Act 109 can use a private judgment search company or a child support enforcement lien program, both of which must be approved by the Welfare Department. The fee for these services can be deducted from the payment to the plaintiff. In addition, certain vendors have come forward following the enactment of Act 109 and have offered to provide search services for a nominal fee.

In cases involving unrepresented plaintiffs, defendants, insurers, and others paying verdicts or settlements must be cognizant of the obligations imposed by Act 109 and amend their office procedures accordingly. In particular, they should establish a protocol to solicit the necessary statement and written documentation of arrears or no arrears from an unrepresented litigant, and they should implement a procedure to check the child support enforcement system website (www.humanservices.state.pa.us/csws) to determine whether the information provided by the unrepresented litigant is correct. Those paying verdicts or settlements should also establish an accounting procedure by which child support arrears are deducted from payments to an unrepresented litigant who owes the arrears. If a defendant or insurer complies with the provisions of Act 109, it cannot be held civilly or criminally liable for an error in paying a child support lien. Nor does anyone entitled to receive the support have a private right of action under the Act.

As a practical matter, the obligations imposed by Act 109 may make it more difficult to settle claims and particularly relatively modest claims. One can envision a scenario where a reasonable settlement value of a tort claim is, for example $10,000, but the plaintiff owes that much or more in past due child support. Upon learning that all, or nearly all, of the settlement proceeds will be intercepted for child support arrears, a plaintiff may become demonstrably less reasonable in his or her settlement expectations and negotiations. Nonetheless, compliance with the Act is required, and noncompliance can result in significant penalties.

* Tim is a shareholder in the firm's Harrisburg, Pennsylvania office. He can be reached at (717) 651-3505 or tjmcmahon@mdwcg.com.