A friendly hearing in New Jersey is a court proceeding where a judge reviews and approves a proposed settlement on behalf of a minor or an incapacitated adult. It is required under New Jersey Court Rule 4:44, and until a judge signs the order, no agreement between a parent or guardian and an insurance company is legally binding. The hearing exists to confirm that the settlement amount is fair, that every deduction from the gross recovery is justified, and that the net funds are handled in a way that actually benefits the injured person.
Why Court Approval Is Required
A parent or guardian does not have legal authority to sign a release that permanently waives a minor’s or incapacitated adult’s right to sue. New Jersey treats these individuals as unable to bargain for themselves and steps in under the doctrine of parens patriae. Court Rule 4:44-3 requires that every settlement involving a minor or mentally incapacitated person be heard by the court without a jury, and the judge must independently determine that the settlement is “fair and reasonable as to its amount and terms.”1GovInfo. A.S. v. Harrison Township Board of Education – Opinion Without that judicial sign-off, the deal is unenforceable.
The rule also lets the court examine settlements that look reasonable on paper but shortchange future medical needs or undervalue long-term pain and suffering. Someone with no financial stake in the outcome has to justify the numbers before the money moves.
What You Need to File Before the Hearing
Preparation is where friendly hearings either go smoothly or stall. Rule 4:44-2 requires that medical testimony about the injuries come from the attending or consulting physician. That testimony can be submitted by affidavit rather than live testimony unless the judge specifically requires the doctor to appear. The affidavit should describe the current condition, the treatment received, whether the injured person has reached maximum medical improvement, and any anticipated future medical needs.
You also need a formal Complaint and a Proposed Order for Judgment. The New Jersey Courts system publishes a model friendly settlement judgment form that sets out the required fields.2New Jersey Courts. Friendly Settlement Judgment Form The form calls for the gross settlement amount, every deduction, and the net recovery that will actually reach the minor or incapacitated adult. Getting these numbers right in advance prevents delays. Common deductions include:
- Attorney fees, capped at 25 percent for settlements without trial
- Litigation costs such as filing fees, expert witness fees, and deposition transcripts
- Medical liens owed to hospitals, health insurers, Medicaid, or Medicare
Judges want a clear breakdown showing exactly what the injured person receives after every deduction. If the net looks thin next to the gross, expect pointed questions about whether the costs were reasonable.
What Happens at the Hearing
The hearing takes place before a judge in a courtroom or, increasingly, through a secure video platform. The guardian appears under oath and testifies about the circumstances of the injury, the recovery so far, and why the settlement amount is appropriate. This is not a formality. The judge is building a record that the guardian acted in the injured person’s interest and understood that approval permanently ends the right to pursue further legal action against the responsible party.
If the child is old enough to communicate, the judge will often speak with them directly. That gives the court a chance to observe physical condition and demeanor firsthand. For very young children or those with severe injuries, the medical affidavit does the work instead.
Once the judge is satisfied that the amount is fair, that deductions are justified, and that the fund arrangement protects the injured person, they sign the Order for Judgment. A judge with concerns can reject the settlement outright or require modifications. A rejection doesn’t end the case; it sends the parties back to negotiate or move toward trial.
Attorney Fees in a Minor’s Case
New Jersey caps contingency fees on a sliding scale under Rule 1:21-7. In a typical personal injury case an attorney can charge up to 33⅓ percent of the first $500,000 recovered.3New Jersey Courts. Advisory Committee on Professional Ethics Opinion 715 – Contingency Fees in Consumer Protection Cases A tighter rule applies when the injured person was a minor or mentally incapacitated when the fee arrangement was made: the fee on any amount recovered by settlement without trial cannot exceed 25 percent. If the case goes to trial and produces a verdict, the standard sliding scale applies.
The judge reviews the attorney’s fee as part of the approval process. Rule 4:44-3 authorizes the court to approve or modify litigation expenses, including attorney’s fees. If the fee looks disproportionate to the work performed or the recovery obtained, the judge can reduce it. Most parents don’t realize they have leverage on fees in a minor’s case, but the friendly hearing is where that leverage exists.
Liens That Must Be Resolved First
Judges will not approve a settlement while medical liens remain unresolved, because those liens are legal claims against the proceeds. Three types come up most often.
Medicare Liens
If Medicare paid any of the medical bills on a conditional basis, those payments must be repaid from the settlement. Injuries must be reported to the Benefits Coordination and Recovery Center, and conditional payments are tracked until the case resolves. Failure to repay a Medicare lien can bring interest charges, referral to the Department of the Treasury for collection, and double damages under the Medicare Secondary Payer statute.4Centers for Medicare and Medicaid Services. Medicare’s Recovery Process For a child, this usually comes up when coverage flowed through a Medicare-eligible parent’s plan, or in cases involving older incapacitated adults.
Medicaid Liens
Under federal law, a Medicaid recipient must assign to the state any right to payment from a third party for medical care.5Office of the Law Revision Counsel. United States Code Title 42 Section 1396k – Assignment, Enforcement, and Collection of Rights of Payments for Medical Care When a personal injury settlement is reached, New Jersey’s Medicaid program has a right to reimbursement for the medical expenses it covered. The lien must be identified, negotiated where possible, and deducted from the gross before the judge approves distribution.
Private Insurance and ERISA Plans
If the bills were paid by a parent’s employer-sponsored health plan, that plan likely has a contractual right to reimbursement from the settlement. Plans governed by the federal Employee Retirement Income Security Act can enforce those provisions directly against the settlement proceeds. If the plan document doesn’t address attorney’s fees, a court may reduce the reimbursement by a proportional share of the legal costs incurred to obtain the recovery. Identifying every lien early and itemizing it in the friendly hearing paperwork prevents last-minute surprises.
Where the Money Goes After Approval
Once the judge signs the order, the net recovery does not go to the parent. The funds are transferred to the County Surrogate’s Office, which deposits them into the county’s Intermingled Trust Fund, an interest-bearing account managed by the Surrogate as custodian.6Monmouth County. Monmouth County Surrogate Office – About Us A guardian of the person and property must be appointed by the court to open and maintain the account.7Essex County Surrogate’s Court. Intermingled Funds The Surrogate holds the money until the child turns eighteen, and no one can touch the principal in the meantime without court approval.
This custodial arrangement exists because handing settlement funds directly to a parent creates an obvious temptation to spend them on household expenses instead of the child’s future needs.
Structured Settlements
For larger recoveries, the court may approve a structured settlement that pays out over time through an annuity rather than a single lump sum going to the Surrogate. Rule 4:44-3 addresses this option directly: when a settlement includes deferred payments, the judge must be satisfied, “based on the financial security of the obligor or surety and such other relevant facts as may be adduced, of the reasonable certainty that all future payments will be made as proposed.” The court will not approve a structured settlement unless the company behind the annuity is solid enough to guarantee decades of payments.
Structures also carry a tax advantage. Periodic payments remain tax-free under the same federal exclusion that covers the original settlement, while interest on a lump sum sitting in the Surrogate’s trust fund is taxable income. Over a long time horizon, that difference compounds.
Early Release and Turning Eighteen
Once the child turns eighteen, they contact the Surrogate’s office with proof of identity to receive the account balance.6Monmouth County. Monmouth County Surrogate Office – About Us Before that birthday, accessing the money is difficult by design. A guardian must petition the Superior Court and show that the withdrawal directly benefits the minor and cannot be covered through other means. Medical emergencies and specific educational expenses are common grounds. Courts scrutinize these requests because the point of the Surrogate’s custodianship is to keep the money intact.
When a Special Needs Trust Is Necessary
If the injured child receives Supplemental Security Income or Medicaid, depositing a settlement into a standard Surrogate’s account could immediately disqualify them. The SSI resource limit remains $2,000 for an individual in 2026.8Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet A settlement of any meaningful size blows past that threshold.
The solution is a first-party special needs trust, authorized under federal law at 42 U.S.C. § 1396p(d)(4)(A) and under New Jersey law at N.J.S.A. 3B:11-36 and 3B:11-37. This kind of trust must be:
- Irrevocable, so once created it cannot be undone
- For the beneficiary’s sole benefit during their lifetime
- Established by a parent, grandparent, guardian, or court, because a minor cannot create it
- Subject to Medicaid payback, so any funds remaining at the beneficiary’s death first reimburse New Jersey Medicaid for benefits paid
The trust can pay for things that improve quality of life without replacing government benefits: specialized medical equipment, therapy, education, and recreation. Direct cash distributions to the beneficiary reduce SSI payments dollar-for-dollar and can trigger loss of Medicaid. The New Jersey Division of Medicaid Assistance monitors these trusts, reviews annual accountings, and requires advance notice of proposed expenditures. All deposits into the trust must be made before the beneficiary turns sixty-five.
Raising the special needs trust issue at the friendly hearing is critical. If the judge approves a settlement that goes into a standard Surrogate’s account rather than a properly structured trust, benefits can be lost before anyone realizes the mistake. The trust needs to be drafted and ready for the judge’s review at the hearing itself.
Taxes on the Settlement
Compensatory damages received for personal physical injuries are excluded from gross income under Internal Revenue Code Section 104(a)(2).9Office of the Law Revision Counsel. United States Code Title 26 Section 104 – Compensation for Injuries or Sickness For most children’s injury settlements, the entire recovery, including amounts allocated to medical expenses, lost future earnings, and pain and suffering, is tax-free as long as the underlying claim involves actual physical harm.
The exclusion does not apply to emotional distress claims that lack an underlying physical injury; any portion of the settlement for purely emotional harm is taxable. The tax-free treatment also does not carry over to investment returns after the fact. Interest that accrues on funds in the Surrogate’s Intermingled Trust Fund is taxable income, reported on a percentage basis as disclosed by the court.