x-ray of a broken arm

Personal Injury Settlements In Divorce

Goldberg Jones Divorce, Finances Leave a Comment

How Does A Personal Injury Settlement Factor into A Divorce?  

If you’re thinking about divorce, or in the middle of a separation, you know money and property form the core of many disputes. If divorce is the forest fire, then money is often the kindling. Where that money comes from has a lot to do with who gets it in the end. Regular paychecks get treated differently than things like an inheritance or personal injury settlement.

The court considers almost all money accrued during the time of marriage as marital property. This means, in the eyes of the law, both parties remain equally entitled to the funds. But do the same rules apply to personal injury settlements?

Related Reading: Life Insurance and Divorce: What You Need to Know

What Is Community Property? 

Laws regarding marital assets vary from state to state. The nine-community property states, of which Washington is one, view marital assets as equally belonging to both spouses. This doesn’t mean they divide everything in half, but each has an equal claim on all money and property accumulated during the marriage.  

The silver lining is that not all assets are considered community property. Any money or property received as inheritance does not fall into community property guidelines. This can also include gifts to one spouse or the other.  

However, there is a grey area.

If one spouse inherits a cash sum, or receives a personal injury settlement, and deposits the money into a joint account used by both spouses, it can be argued those funds become a marital asset and therefore community property. Additionally, using this money to pay off things like a shared mortgage or buy a vehicle further muddies the water.   

In order to avoid your spouse from potentially building a case for your settlement money, keep those funds separate. The more the funds are commingled, the more likely they are to be considered community property in a divorce.

Related Reading: Rebuilding Finances Post-Divorce

Can A Personal Injury Settlement Be Community Property? 

During a divorce, any large sums of money granted to one party are evaluated and placed into one of two categories. A personal injury settlement is awarded either as compensation for individual suffering or to restore damaged property or lost wages.  

If the court deems personal injury settlement compensation for a pain and suffering, it generally does not consider that community property. The person who sued for pain and suffering is the sole owner of the funds awarded to them. 

However, if settlement is compensation for property damage or lost wages, it is considered a marital asset. Courts view things like vehicles and income as community property. So if a settlement reimburses lost wages due to an injury, or to fix a damaged car, it falls into that category.

Related Reading: A House Divided: Divorce When You Work From Home

What If We Have a Prenup?  

In most cases, community property states divide assets so each spouse receives a fair and equitable share. If there is a prenuptial agreement, the court may decide it is within its right to allow an uneven distribution of community property. If it considers a personal injury settlement a separate asset, and therefore not subject to division, this may affect liability for alimony and child support.  

Related Reading: Can My Ex Get My Disability Payments in Divorce?

Is There A Way to Receive Part of The Settlement?  

As usual, there are exceptions to these aforementioned rules. Extenuating circumstances change how to divide a personal injury settlement in an divorce.

These include: 

  • If an accident happened before the marriage. Money granted for a personal injury settlement stays the sole property of the person it was awarded to. The same goes for time of separation. If both parties lived separately when the incident occurred, the non-injured spouse isn’t entitled to any of the payout.  
  • If the recipient covers certain expenses with non-community property funds. A divorce settlement can include reimbursement for out-of-pocket expenses.
  • When one spouse has the right to sue the other spouse for a wrong that occurred during the marriage, the injured spouse may be solely entitled to the award.  
  • There is a vague exception that states when the personal injury settlement is assigned solely to the injured spouse, the non-injured spouse is intended to be reimbursed in the form of different property. In this instance, the court uses discretion to divide the award any way it deems fit, as long as the injured spouse receives at least 50 percent.  

Related Reading: Can I Buy a House During a Divorce?

Should I Consult with An Attorney? 

The division of a personal injury settlement can become very complicated very quickly. As is so often the case, it’s best to consult a divorce attorney with experience in this area. They understand the specific complications and potential hazards this poses to your case.

Related Reading: Gift or Inheritance? And Why That Matters

Leave a Reply

Your email address will not be published. Required fields are marked *