How Are Personal Injury Settlements Divided in a California Divorce?

Are Personal Injury Settlements Community or Separate Property?

Personal injury settlements are usually the injured spouse's separate property, but there are exceptions and other nuances to California law.

Spouses sometimes face the complex issue of whether personal injury settlements or damages are classified as community property or separate property. This distinction can significantly impact how these damages are distributed during divorce proceedings, potentially leading to litigation.

Note: This article does not constitute legal advice and is not tailored to your specific situation. Always consult with an experienced family law attorney before making decisions about your case.

Understanding Family Code 2603

Family Code 2603 reads:

"(a) Community estate personal injury damages" as used in this section means all money or other property received or to be received by a person in satisfaction of a judgment for damages for the person's personal injuries or pursuant to an agreement for the settlement or compromise of a claim for the damages, if the cause of action for the damages arose during the marriage but is not separate property as described in Section 781, unless the money or other property has been commingled with other assets of the community estate.

(b) Community estate personal injury damages shall be assigned to the party who suffered the injuries unless the court, after taking into account the economic condition and needs of each party, the time that has elapsed since the recovery of the damages or the accrual of the cause of action, and all other facts of the case, determines that the interests of justice require another disposition. In such a case, the community estate personal injury damages shall be assigned to the respective parties in such proportions as the court determines to be just, except that at least one-half of the damages shall be assigned to the party who suffered the injuries."

Here is a breakdown of what Family Code 2603 means.

1. Definition: "Community estate personal injury damages" refers to all money or property received in satisfaction of a judgment for personal injuries or through a settlement, provided the cause of action arose during the marriage and is not considered separate property under Section 781. This classification remains unless the money or property has been commingled with other community assets.
2. Distribution: Typically, these damages are assigned to the injured party unless the court, considering factors like the economic condition and needs of each party, the time elapsed since the damages were recovered, and other relevant facts, decides otherwise. Even then, at least half of the damages must be awarded to the injured party.

What Happens With Personal Injuries During Marriage?

That means California law generally assigns personal injury damages incurred during the marriage to the injured spouse. However, the nuances in Family Code 2603(a) suggest that the specifics of the case can influence this interpretation.

What Does "Interests of Justice" Mean?

Family Code 2603(b) includes an "interest of justice" provision, which can lead to disputes. This provision considers both parties' economic condition and needs, the time since the damages were recovered, and other case-specific factors. This can result in complex litigation, especially when the damages are substantial and not clearly categorized (e.g., lost earnings, medical bills, emotional distress).

Commingling of Community Estate Personal Injury Damages

Tracing these damages becomes necessary when personal injury proceeds are commingled with other community funds. The extent of commingling impacts the complexity of this process, potentially requiring a forensic accountant to trace the funds accurately. The outcome of such cases depends heavily on detailed evaluations and the expertise of family law attorneys and forensic accountants.

Understanding Family Code 781

Family Code 781 states the following:

"(a) Money or other property received or to be received by a married person in satisfaction of a judgment for damages for personal injuries, or pursuant to an agreement for the settlement or compromise of a claim for those damages, is the separate property of the injured person if the cause of action for the damages arose as follows:

(1) After the entry of a judgment of dissolution of a marriage or legal separation of the parties.

(2) While the injured spouse is living separate from the other spouse.

(b) Notwithstanding subdivision (a), if the spouse of the injured person has paid expenses by reason of the personal injuries from separate property or from the community property, the spouse is entitled to reimbursement of the separate property or the community property for those expenses from the separate property received by the injured person under subdivision (a).

(c) Notwithstanding subdivision (a), if one spouse has a cause of action against the other spouse that arose during the marriage of the parties, money or property paid or to be paid by or on behalf of a party to the party's spouse of that marriage in satisfaction of a judgment for damages for personal injuries to that spouse, or pursuant to an agreement for the settlement or compromise of a claim for the damages, is the separate property of the injured spouse."

Here is a breakdown of what Family Code 781 means:

1. Separate Property for Injured Spouse: Compensation for personal injuries is considered separate property if the cause of action arose: (a) After a judgment of dissolution or legal separation, (b) while the spouses lived separately.
2. Reimbursement Rights: The non-injured spouse is entitled to reimbursement for expenses paid from their separate or community property due to the injured spouse's injuries. This reimbursement comes from the injured spouse's separate property received as compensation.
3. Injuries During Marriage: If one spouse has a cause of action against the other that arose during the marriage, any compensation received by the injured spouse is their separate property, even if the payment is made by or on behalf of the other spouse.

How Will Personal Injury Damages Be Divided in Your Divorce Case?

Seek legal advice for specific guidance on how personal injury damages will be divided in your divorce. No article can replace professional legal counsel. Contact us for an affordable strategy session if you have a Southern California family law matter.