Negotiating The Professional Athlete’s Child Support Obligations

Finally, after four months of negotiations, the veteran professional athlete was anxious to get back out on the field without the recent distractions. The distractions had not involved his employment contract negotiated by his sports agent. Instead, they concerned his child support obligation, which was negotiated by his family law attorney.

As the negotiations were concluding, he was facing fifteen years of monthly payments to his child’s mother. He wished there was a way to avoid the monthly inconvenience and claims of missed or late payments. Since he had the money now, he simply wanted to write one check to provide for his child during the years to come and to minimize his interaction and conflict with his child’s mother. However, he had reasons to be afraid that a lump sum payment to his child’s mother would be quickly squandered.

Fortunately, a friend advised him about the single child support payment tool known as the Professional Athlete Single Support Payment (the “PASS Payment”). The PASS Payment allows the professional athlete to make a single lump sum payment to a third-party insurance company, which then becomes responsible to make monthly payments to the child support recipient. The athlete may be relieved of any further responsibility and the payment stream is guaranteed. After this innovative financial tool was brought to the negotiating table, the disputes were quickly resolved and his goals were accomplished.

Usually, a child support obligation continues long after an athlete has retired his bat or hung-up his jersey. As time goes on, the athlete must continue to make payments and manage cash flow to insure that money will be available to meet the ongoing child support obligation. However, fortunately, once the PASS Payment is made by the athlete to the third-party insurance company, the athlete has satisfied the then-existing obligation in full, provided financial security for his child and removed the child support payment dollars from the reach of potential creditors.

Child support obligations are confirmed in writing between the parties wherein the parties set forth the specific amount and terms of payment. Child support is generally required to be paid on a monthly or weekly basis. However, when appropriate terms are negotiated and set forth in writing by the parties, the PASS Payment allows the athlete to avoid years of check writing by making a single payment which fully satisfies his then existing child support obligation. For example, if the athlete negotiates to make monthly child support payments of $3,000 per month for the next 15 years ($576,000 = $3,000 x 15yrs.), the athlete will be able to satisfy this support obligation with a single PASS Payment today of approximately $405,000.

Under the PASS Payment approach, the first step in the process is negotiating the child support amount. Child support laws vary dramatically from state to state. For example, in Texas, generally only the first six thousand net dollars per month are considered for child support purposes, essentially setting a cap on the child support obligation. However, other states do not have such a cap or have a much higher cap. The California child support formula considers the income of both parties. In other states, however, it is only the income of the paying party that is generally considered. Adding to the complexity, the child support laws of New York are different from those of California or Michigan. Because of the different considerations and consequences involved, it is essential for the athlete to obtain representation by a family law specialist to ensure the propriety and enforceability of the agreement and that all necessary documents are properly drafted.

Once parties have agreed on the child support terms the athlete engages the services of a third-party insurance company and makes the PASS Payment to the insurance company. At that point, the insurance company essentially steps into the shoes of the athlete and makes each regular ongoing support payment to the child’s caregiver. By engaging the insurance company, and not writing a lump sum check directly to the other party, the athlete has guaranteed that the monthly payments will continue for the entire term of the obligation or that the balance is returned to the athlete if the support payments are no longer required. Additionally, the athlete has guaranteed that the funds will always be available to support his child and will not be tied-up in risky investment schemes or lost through poor investment choices. The child’s caregiver receives a corresponding benefit because she has guaranteed that she will receive regular payments.

But what if the athlete wants to modify (i.e., reduce) his child support obligation after he has assigned and funded the previously negotiated child support payments, or what if the obligation is terminated (e.g., death of child)? These questions are answered by adding a trust to the transaction. Rather than having the support payments paid directly from the third-party insurance company to the child’s guardian (or state agency as required in certain states) the payments are first paid to a trust which then distributes payments to the child’s guardian in accordance with the “then prevailing” support document. Therefore, if the payment terms are modified downward, the trust will pay-out accordingly, and the surplus will revert back to the athlete who funded the trust. If the support obligation is prematurely terminated (e.g., an emancipation event occurs) then the remaining funds held by the insurance company are liquidated to the trust and are distributed back to the athlete.

Because the PASS Payment avoids the numerous financial and legal landmines that arise over years of making support payments, it is a “win-win” situation for all involved. It provides significant protection for both the child and the parties against the risks of injury, bankruptcy or other financial concerns. It may also eliminate or greatly simplify potential future litigation involving the parties and the child. Ultimately, the PASS Payment provides the benefits of convenience, security and peace-of-mind for both the parties and the child.

This article does not constitute legal advice and you are directed to your personal legal and tax advisor for more information on the issues in this article.

(1) In certain states this writing is an agreed court order, in other states the writing is an agreement between the parties.

(2) Again, the required writing will be either an agreement between the parties or an agreed court order, depending on state law.

(3)This is not a quote for the sale of an insurance product. Please be advised that rates change and actual PASS Payment costs may vary.

(4) In certain states this requires a judge’s signature.