Family Court Lien $5,000 Safe Harbor in Disbursement of Settlements Does Not Exist
One of the sticky issues that Workers' Compensation Carriers must confront as a part of paying settlements and payment of indemnity benefits are the provisions of Act 109. Act 109 became effective in September of 2006, and since that time, the Courts have, for the most part, become garnishees of money received from Workers' Compensation Carriers used to pay past due child support. 23 Pa.C.S.A. §4305 in pertinent part states that a Court may:
"‘(10) Issue orders in cases where there is a support arrearage to secure assets to satisfy current support obligation and the arrearage by:
(i) Intercepting or seizing periodic or lump sum payments from a government agency, including unemployment compensation, workers’ compensation and other benefits."
When a Claimant with an outstanding and recoverable child support arrearage receives workers compensation benefits either by way of an award of indemnity benefits and or via a resolution by way of Compromise and Release, the Court can act to make sure that these arrearages are paid. The Court can intercept such payments and direct that the Workers' Compensation Carrier pay them directly to the Pennsylvania Office of Child Support (PASCDU) to satisfy all or part of a child support arrearage.
As Workers' Compensation attorneys know, the Claimant is required to execute what are referred to as Act 109 documents as part of the submission of evidence to the Workers' Compensation Judge in the litigation of cases which could result in the payment of indemnity benefits or as an exhibit made part of a Compromise and Release Agreement. The Claimant is typically asked to execute an affidavit indicating that they do not have a child support arrearage and further they are often asked to testify to same. The Compromise and Release process also requires a lien search be performed on the PASCDU website to ensure that all bases with regard to a potential lien are covered.
Obviously, this places an obligation on the Carrier to make sure that any past due or overdue arrearages are paid to PASCDU. They are in effect, garnishees of the child support debt.
In Coffman v. Kline, 167 A.3d 772; 2017 Pa Super. 241 (2016), a mother filed a complaint for child support and the Court issued a qualified domestic relations order, or QDRO. The father who had sustained a workers' compensation injury negotiated a settlement of his Workers' Compensation case via a Compromise and Release. Because of the issuance of the QDRO, Domestic Relations issued a non-disbursement order under §4305 and served it appropriately on the Workers' Compensation carrier. The order specifically precluded payment of any settlement funds to the father.
The father agreed to resolve his claim by way of a Compromise and Release and testified before a Workers' Compensation Judge regarding his understanding of the settlement – as required by the Workers' Compensation Act for approval of a settlement. The arrearage was $14,983.10. The settlement amount was under the $5,000.00 threshold set forth under §4308.1(i), which states in pertinent part: “Net proceeds.” —Moneys in excess of $ 5,000 payable to a prevailing party or beneficiary, or in the case of an award under the act of June 2, 1915 (P.L.736, No.338), known as the Workers’ Compensation Act.”
Since the total settlement was less than $5,000, the carrier disbursed the money to the Claimant, father and ignored the non-disbursement Order. The mother then filed a Petition for Contempt of the QDRO which was dismissed with prejudice because the amount disbursed was under the $5,000.00 alleged “safe harbor” as outlined in §4308.1. Thus, the Court determined that the carrier had no duty under the law to garnish the settlement and present it to PASCDU. The Court felt that the carrier had followed the mandated procedure and was not in contempt.
The mother appealed the dismissal of the Contempt Petition against the carrier. The Appellate Court indicated that the carrier acknowledge that they had received the non-disbursement Order. They also admitted that they knew of the Order and deliberately ignored it in the payment of the Decision on the Compromise and Release, given that the amount was lower than $5,000 as stated in §4308.1. The appeals Court lambasted the carrier and indicated that the carrier was more concerned with moving forward on its Compromise and Release Agreement and resolving the case, rather than obeying the Order. The Court further held that the carrier did not have a “safe harbor” under the section, although the total settlement was less than $5,000. The Appellate Court felt that non-disbursement meant exactly that: non-disbursement. Thus, the Court ruled that the mother had shown by a preponderance of the evidence that the carrier willfully violated the non-disbursement Order with the wrongful intent of avoiding an obstacle to settlement. If the Claimant knew that the entire settlement would be engulphed by the acknowledged lien arrearage, which would leave him with nothing, he would not have settled the case. Thus, there was nothing in the Court’s eyes that could forgive the carrier’s willfully ignoring the law.
What this means is that carriers must be aware of these liens and cannot ignore non-disbursement Orders to resolve difficult cases. There is no safe harbor of $5,000 here for the carrier. Thus, carriers must take QDROs and non-disbursement Orders seriously and should at least escrow the money in a settlement until the requirement to pay shakes out in Family Court.