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Is a Personal Injury Award Considered Marital Property?
Is a Personal Injury Award Considered Marital Property?

In some respects, a marriage dissolution is similar to a business dissolution, but the primary case factors can be very different in a divorce settlement. There are three basic approaches that states use when determining equity in marital property. Those approaches are unitary, analytic, and literal. Ultimately, it will depend on the state of residence when filing for divorce, and what approach the court takes towards property division. Regardless of the approach, the states are generally divided as either “community property” states or “equitable distribution” states.

The Three Approaches

The unitary approach is only used in a limited number of states. It is the basic idea that proceeds from a personal injury lawsuit belong completely to the injured claimant. A divorcing spouse cannot include any of the amount as an asset when pursuing a divorce.

States that use the analytic approach instruct the court to investigate each financial asset claim from a personal injury award, and make a determination as to whether it is marital or non-marital based on the intention of the settlement. Lost wages and medical bill liabilities can be divided equally, but pain and suffering damages are property of the injured party. This can pose a problem if a spouse has arranged to designate the entire amount as pain and suffering in settlement negotiations.

The literal approach means that all assets belong to both spouses, regardless of material case factors, if they are acquired while the marriage is still valid.

Community Property

Community property refers to any assets that are acquired during a marriage, This approach does not recognize separate asset ownership unless the property was acquired before the marriage. Personal injury awards that were disbursed before a marriage are the sole property of the injured plaintiff. As a Coeur d’Alene ID personal injury lawyer would explain, in most cases when an injury occurs during the marriage, all assets transferred are generally the property of both spouses, and may be divided by the court in the event of a divorce. This also includes scenarios in which the settlement is not paid until after the divorce is filed or finalized. Community property values are calculated and the property is either divided equally, or one spouse gives the other spouse a full monetary settlement. Nine states assert community property: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Equitable Property Division

The courts in states using equitable distribution of assets will look at the entire list of assets the divorcing couple holds, and make an assessment based on “marital” and “non-marital” property status. These states usually consider lost wages and medical bills as marital property, and the uninjured spouse shares equally in this portion of a damage recovery assignment. Pain and suffering damage awards can be a different issue in an equitable distribution state, but extenuating circumstances can give the uninjured spouse standing to claim a portion of the settlement or verdict when the injury is permanent and very serious, requiring the uninjured spouse to lose work or serve as a caregiver. Divorces in equitable states can be more complicated than in community property states because of this separate property distinction, especially when the uninjured spouse can file a loss of consortium claim. It is not necessary for an individual to die for a loss of consortium claim to be valid when the injury is severe and permanent.

Thanks to our friends and contributors from Bendell Law Firm for their insight into personal injury practice.

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