Will a personal injury award be considered marital property in a divorce?
The answer to this question, like most other legal question is “It depends.” The answer will also require that we define our terms here.
Marital Property – Assets that belong to both spouses and each is entitled to their marital portion.
Separate Property – Assets that belong to only one spouse because of its intensely personal nature, or because it was owned prior to the marriage, or inherited.
First and foremost, the answer depends on where you live. Is your state a “Community Property” State or an ‘Equitable Division” State? In a Community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.) the court will divide all marital property down the middle, meaning your personal injury award could be divided 50/50 between you and your spouse. This is an Equal division.
An equitable division is not necessarily equal. It allows for more of an argument about what is fair to be divided between the spouses. In an equitable division state, your spouse’s attorney may argue that certain parts of the personal injury award is owed to a non-injured spouse. But they would likely be limited in their claim to only the monetary and measurable awards such as for lost wages, medical bill reimbursement, expenses associated with the injury etc. A non-injured spouse likely would not prevail in their argument that they were entitled to a portion of the payout for a lost limb for instance since that is a harm that only the injured spouse endured, and will continue to endure after the marriage is ended, and therefore, if we are being fair and equitable, only the injured spouse should receive the benefit for.
Another option for the non-injured spouse is to not seek a division of the personal injury award at all. Why? Because if there is a spousal support award, the court can treat that settlement money as income to try to raise that alimony amount. The same logic would be applied to a child support calculation as well. This tactic would largely depend on whether or not there was a lump sum payout or if it is a structured settlement that is paid out over time.
The big takeaway is you don’t know what you don’t know and that is why it is essential to have an advocate who can negotiate these complicated discussions for you such as the Family Lawyer Phoenix locals trust. Another good idea is to consult your tax advisor to determine what kind of tax consequences will happen as a result of any kind of monetary settlement.