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What Happens to a Personal Injury Settlement During a Divorce

Updated on May 27, 2016

What can happen to your injury settlement while going through a divorce?

When going through a marital breakup, there is a period of time between filing for divorce and the actual divorce decree that can be considered a minefield of potential property issues. This is a time when the importance of legal consultation cannot be underestimated.

When a personal injury occurs during a divorce process, the claim settlement or award may fall under community property. Because of the nuances of both the divorce and an injury case, it is even more important than ever to ensure you have the support and guidance of an attorney who knows the impact that a divorce can have on your settlement.

Insurance Claim Form
Insurance Claim Form | Source

How States View Settlements During Divorce

Some states are fairly clear and straight forward in their regulations. They treat personal injury awards or settlements as strictly personal and belonging only to the person who was injured. These non-marital funds will then not be subject to division in a divorce.

Other states are more analytical in their decision. They may separate each element of damage compensation and determine whether that specific damage is non-marital or marital. This approach is more detailed but adds more elements to the fairness in division of marital assets.

Below are some of the most common settlement types. Each of these may be handled differently during a divorce, in regards to whether an award is community or individual property. Each state may handle the outcome differently as well. The information below pertains to Arizona courts.

Disability Insurance

Usually paid out to a victim to cover medical expenses, general expenses or lost wages arising from an injury, disability insurance is considered community property in some instances. This determination comes down to whether the policy was purchased during the marriage and injury happened during the marriage. For a disability policy purchased during the marriage and injuries also occurring pre-divorce, Arizona courts maintain the proceeds are community property.

Unemployment Insurance or Workers Compensation

Like disability insurance policies, unemployment insurance or workers compensation claims are community property, as the insurance losses are to the community of the marriage.

Auto or Fire Insurance

Whether the underlying auto or damaged structure are community property will determine if the award is also community property. If you are involved in a car accident and the car is not community property, the insurance funds are yours alone. The same is true of a house damaged by fire, which you own independently. But if the vehicle is jointly owned, or the house is the marital home, any funds issued to cover damages are likely also community property and will be subject to division as marital assets.

Personal Injury Awards

If one spouse is involved in an accident that leads to high medical expenses and lost wages to the community of the marriage, then expense recovery or personal injury awards are also community property. But if one spouse is being provided with funds due to personal pain and suffering or personal loss such as loss of a limb, the recovery is handled as individual property, not community.

Even if an injury happens after the service of petition for dissolution of the marriage, the community benefits until after the divorce is final. A general rule in Arizona is that all property acquired by either spouse during the marriage belongs to both. Exceptions under this rule are gifts and inheritances. Insurance proceeds are neither inheritance, nor gifts. So the next question is, what proceeds would be providing compensation.

Injury Claim Settlement Proceeds During a Divorce
Injury Claim Settlement Proceeds During a Divorce | Source

During a divorce, an attorney that is familiar with both personal injury law and divorce regulations must carefully analyze the complaint, judgment and injury settlement terms, as well as the purpose of the insurance policy. Your lawyer will also look at medical expenses and lost wages to determine which wages are community losses and which are personal losses for the individual suffering the injury.

No one plans to have an accident or suffer injuries due to others’ negligence. When these issues happen during the unpleasant burden of divorce, dealing with an additional injury settlement can bring on unwanted stress.

What Do You Think is Fair?

If a spouse has been injured during a divorce process, should the settlement be split?

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