‘Akin to an asset’: Wrongful death payments not income for child support

Annuity payments received by a woman as a structured settlement for her mother’s wrongful death shouldn’t be included as gross income for purposes of calculating child support, a Virginia circuit court has held.

The woman claimed her annuity payments were capital recoupment and that Virginia excludes tort settlement proceeds from income.

Judge Rondelle D. Herman of the Henrico County Circuit Court agreed.

“This Court finds that wrongful death claims are analogous to personal injury claims,” the judge said. “While the Plaintiff did not personally suffer an injury to her person, as a minor child, she suffered the traumatic and devastating loss of her mother.”

However, Herman noted that nothing precluded the court from considering other statutory factors to reach a different conclusion.

The opinion is Horn v. Smith (VLW 023-8-059).

Annuity payments

When she was a child, Jennifer Horn lost her mother in an auto accident. Horn was awarded a wrongful death structured settlement, which was satisfied through an annuity that pays her monthly and lump sums.

Her ex-husband, Darrell Smith, sought to amend the child support amount he owed to Horn in the Henrico County Circuit Court. Horn moved to exclude her annuity payments from gross income for calculating child support under Virginia Code § 20-108.2(C).

Horn argued her annuity payments weren’t income because the settlement compensated her for the loss of her mother. A wrongful death claim is based on negligence therefore her settlement payments were capital recoupment not capital gains, she contended.

Further, she asserted that § 20-108.2(C) and case law excludes tort claim settlement proceeds as income; the form of payment doesn’t change its status as capital recoupment.

But Smith said Horn’s wrongful death claim wasn’t a personal injury claim. While the payments were compensation for the loss of her mother, Horn didn’t suffer a personal injury, Smith maintained. He also argued that the payments were capital gains.

Asset or inheritance

Gross income “means all income from all sources and shall include … annuities,” according to § 20-180.2.

Herman said that definition was expansive enough to encompass many forms of proceeds.

“While the statute does not exclude annuities, case law establishes that settlement proceeds from personal injury claims should be excluded in whole, or in part, from the computation of gross income depending on the circumstances,” the judge explained. “The reasoning is that the settlement proceeds are compensation for personal pain and suffering and are restorative.”

The Court of Appeals of Virginia held in 2014’s Oley v. Branch that “the evidence must prove that a defined portion of the settlement generates income to the recipient” instead of simply compensating for past injury, Herman pointed out.

“This Court finds that wrongful death claims are analogous to personal injury claims,” the judge said. “While the Plaintiff did not personally suffer an injury to her person, as a minor child, she suffered the traumatic and devastating loss of her mother.”

“It is the Court’s position that the annuity payments are more akin to an asset or an inheritance, which is also excluded from gross income for child support purposes.”

— Judge Rondelle D. Herman, Henrico County Circuit Court

Herman said a settlement wouldn’t have compensated Horn for “lost wages, loss of earning capacity, expenses, etc.” under these circumstances.

“In considering the specific facts of this case, the Court finds that the Plaintiff was compensated for ‘[s]orrow, mental anguish, and solace which may include society, companionship, comfort, guidance, kindly offices and advice of the decedent’ pursuant to Virginia Code § 8.01-52(1),” the judge wrote.

Here, there was no persuasive evidence that the wrongful death settlement was for any other purpose than making “the recipient whole from damages incurred.”

Herman cited the Court of Appeals’ 1994 decision in Whitaker v. Colbert in finding that Horn’s wrongful death annuity payments should be excluded from gross incomes for calculating child support and wasn’t income within the scope of § 20-108.2(C).

“It is the Court’s position that the annuity payments are more akin to an asset or an inheritance, which is also excluded from gross income for child support purposes,” the judge said.

Herman rejected Smith’s argument that the annuity payouts were capital gains, noting the argument that the initial settlement was a capital recoupment.

“It is well settled that the form of the settlement payment does not alter the underlying character of the source,” the judge pointed out.

In granting Horn’s motion in limine, Herman cautioned that “despite being excluded from gross income, nothing precludes the Court from considering any other factors enumerated in Virginia Code § 20-108.1 for deviation purposes.”

Finally, the judge denied Horn’s motion for attorneys’ fees, saying the case was unique and that Smith’s objection wasn’t frivolous.

‘Presumptive amount’

Family law practitioner Larry Diehl of Barnes & Diehl in Richmond is a member of the Virginia Family Law Coalition, a statewide group of family law practitioners who track and address legislation. He agreed with the judge’s presumption that Horn’s annuity wasn’t gross income.

“She was proper in looking at the substance of the annuity, and not just saying the Annuities Statute controlled,” Diehl told Virginia Lawyers Weekly.

Diehl, who wrote Code § 20-107.3(H), which treats personal injury settlements for lost wages or unreimbursed medical expenses as marital property, pointed out that personal injury settlements could still be factored into spousal support orders.

“We thought it was a fair statute because we should only be looking at the loss of income or incurrence of medical debts as direct financial considerations for the court,” he said.

But Diehl noted that the judge’s decision only affected the presumptive amount of child support.

“We’re missing a lot of details here, such as the current support amount as well as the age and needs of the child,” he said. “The court could still use a back door to deviate from the presumptive support amount if it would be unfair and unjust where one party has more resources.”