Are Personal Injury Settlements Community Property or Separate Property?

Are personal injury settlements community or separate property?

Family law attorneys sometimes wrestle with cases that involve personal injury damages and the question inevitably comes up whether those personal injury settlement or damages are community property or separate property. The characterization of personal injury damages and how they are distributed can lead to family law litigation.

This article is not legal advice. This article is not intended to apply to your specific case. You should always retain an experienced family law attorney before making any decisions on your specific matter.

First, we will look at the law.

(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.

- Family Code 2603

Personal injuries that occur during the marriage

California law appears to assign such personal injury damages that fall under the definition of "community estate personal injury damages" to the spouse who suffered the injuries and it provides exceptions within the body of section (a). Notice section (a) of this code references "if the cause of action for the damages arose during the marriage." Generally, that should mean when the injury was suffered. Could it have a different meaning? We suppose that depends on the specific facts of the case.

A discussion of Family Code 781 (which is referenced in Family Code 2603) is beyond the scope of this article. You may review it with your family law attorney to see if it applies to your case.

What does interests of justice mean?

Notice also that section (b) of Family Code 2603 sets forth an "interest of justice" provision. The term "interest of justice" has likely caused court disputes. In fact, terms like that can result in litigation when the personal injury damages at issue are large and are not specifically labeled for a specific type of recovery such as lost earnings, current medical bills, future medical bills or emotional distress. The code also addresses the economic condition and needs of the husband and wife, the time that has elapsed since recovery of damages or since the cause of action actually arose, and all the other relevant facts of the case. Vague enough for you? That is the problem.

Even if the Family Court determines that an injury which occurred during the marriage and the damages that were recovered as result should not go solely to the injured spouse, the most the court can ever give the non-injured spouse is one half of the damages.

What about commingling of community estate personal injury damages?

Commingling of the personal injury proceeds can make the analysis more difficult. For example, if community estate personal injury damages are commingled with other community funds, will a tracing of the personal injury damages be necessary? It may and the degree of tracing of course also depends on the degree of commingling. It is possible that the commingling can be so significant that there is no way to trace it just as it may be possible to easily trace the personal injury proceeds.

This is often an issue that requires the use of a forensic accountant. Whether or not commingling of community estate personal injury damages does or does not change the application of Family Code 2603 and to what extent is something that can be determined after a detailed evaluation of the case is done and the experience of a family law attorney and possibly a forensic accountant may be useful.

How will the personal injury damages be divided in your divorce case?

For that, you need legal advice. No article will get you there. If you have a Southern California family law matter, you can contact us for an affordable strategy session.

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