If your child was injured in an accident, California law imposes important obligations on you as a parent. If you settle your child's claim, the settlement proceeds belong to your child, not to you. In addition, the settlement must be approved by a court. Getting advice from an experienced personal injury lawyer gives you the best opportunity to understand and abide by your obligations.
Court Approval of Minor Settlement
An adult who is injured in a car accident is free to settle the injury claim without involving a court. The injury victim's settlement with the insurance company is a contract, and adults are free to make their own contracts. Courts rarely become involved in settlements between an adult and an insurance company.
California law is much different when a child is injured. No settlement of a personal injury claim may be made by a minor because minors do not have the legal capacity to enter into a contract. A parent acting on a minor's behalf cannot settle the minor's claim without a court's approval.
Approval is obtained by filing a petition with the appropriate California court. The petition must be filed by a court-appointed guardian. The lawyer representing the minor will usually be appointed as the minor's guardian ad litem for the purpose of settling the claim.
If a lawsuit is filed, the guardian ad litem is appointed when the lawsuit is commenced. If no lawsuit is filed, the guardian ad litem must be appointed when the petition to approve the minor settlement is filed with the court.
When parents negotiate a child's settlement without the benefit of a lawyer, the court will still need to appoint a guardian ad litem to assure that the settlement serves the child's best interest. Whether or not the parents hired a lawyer for their child, the court will need to approve any settlement negotiated on behalf of the minor.
In fact, insurance companies generally won't agree to settle a minor's claim unless the settlement is approved by the court. Without court approval, the settlement is not binding. As soon as the accident victim turns 18, the victim would be entitled to disregard the unapproved settlement and to bring a lawsuit for compensation. Insurance companies therefore insist on court approval of minor settlements to protect their own interests.
Protection of Minors
Court approval protects the minor in two important ways:
- The court will assure that the settlement of the minor's claim is fair and reasonable
- The court will prohibit the minor's parents from spending the settlement for their own purposes
When a minor's lawyer negotiated the settlement and is appointed as the minor's guardian ad litem, courts routinely approve minor settlements. Courts know that a lawyer who serves as guardian ad litem is required to act in the minor's best interest. Courts typically respect the judgment of experienced attorneys, who know the facts of the case better than the judge who must approve the settlement.
Before the court will approve a minor's personal injury settlement, it will hold a hearing. This is usually known as a Minor's Compromise and Release Hearing. The hearing gives all interested persons a chance to tell the judge whether they agree with the settlement and how to handle the settlement funds.
In most cases, a Minor's Compromise and Release Hearing is routine. When no objection to the settlement is made and the court is satisfied that the minor's lawyer has negotiated a reasonable settlement, the court will promptly approve the settlement and enter an appropriate order to protect the settlement proceeds.
Restricted Access to Settlement Proceeds
California courts have a couple of options to protect the minor's interest in the settlement proceeds. The goal is to assure that the money is still there when the child turns 18 and has the legal capacity to use it for his or her own benefit.
One option is to deposit the money into a blocked account in the child's name. A restriction on the account prohibits withdrawals. That restriction is removed when the child turns 18.
Another option is to substitute an approved investment vehicle for a blocked account. An annuity contract that begins making payments to the child at age 18 (but not before) is an example of an approved investment vehicle that might be used.
Withdrawals from Blocked Accounts
Withdrawals can only be made from a blocked account by petitioning the court for approval to make the withdrawal. Since the money belongs to the child and not the parents, general statements about a parent's need for the money will not persuade the court to permit a withdrawal.
A court may permit a withdrawal that directly benefits the child. For example, if the child needs a medical procedure that is not covered (or only partially covered) by insurance, the court may permit a withdrawal to pay the medical expense. However, since parents have a legal obligation to provide healthcare for their children, it will be necessary to provide evidence that the parents do not have the ability to pay for the procedure from their own funds.
Even if the withdrawal benefits the child, the court might not approve it. For instance, if a parent says “my child wants a new bicycle,” the court will probably tell the parents that it is their duty to make gifts to the child from their own funds, not from the child's.
An exception to the general rule applies when a minor's personal injury claim settles for less than $5,000. In those cases, the parents will generally be granted authority to manage the settlement on the child's behalf. The parents are still required to manage the money for the child's benefit, but there will typically be no judicial oversight and the funds will not need to be deposited into a blocked account.
Deciding whether a claim is worth more than $5,000, however, is not a decision that most parents are trained to make. Getting the opinion of a personal injury lawyer is always a good idea before deciding whether to settle a minor's injury claim.