Dividing property equitably is difficult during a divorce. This is especially true regarding grey areas, like personal injury (PI) settlements. Typically, these settlements are regarded as separate property. However, in some instances, they are considered community property to be divided equitably.

A spouse might be entitled to a portion of a settlement for an accident he or she didn’t suffer from directly. This is because diminished earning capacity and other factors affect both partners in a marriage.

Spouses looking to protect PI settlements, or hoping to prevent their spouse from hiding assets, should \understand the ins and outs of community property.

Community Property vs. Separate Property

Most property and assets accrued throughout a marriage are considered to be community property. Money earned by either spouse during the marriage, or assets purchased with said money, is to be divided upon divorce.

Separate property is that which is owned by one spouse alone. Most often, these assets are considered one spouse’s property because:

  • One spouse owned the property before marriage
  • Property or money was given explicitly to a single spouse as a gift
  • A spouse inherits money

Even if one spouse holds the title to a vehicle or piece of property, it is still considered communal.

When Is an Injury Settlement Considered Community Property?

Personal injury refers to an injury of the body, mental functions, or emotions. As such, PI settlements are generally safe from being divided in a divorce.

Personal injury settlements that occurred before marriage, or after separation, are automatically that person’s property. Even during a marriage, compensation the following damages are considered to be an individual’s own property:

  • Physical injury
  • Pain and suffering
  • Mental anguish
  • Disfigurement

An injury involving community property, such as a jointly-owned vehicle, would be divided in a divorce. The other spouse would not be entitled to all of the settlement money, just the compensation for property damage.

Settlements for Loss of Income

Compensation for loss of earning capacity, however, is always treated as community property. Lost earning capacity affects the available income of both spouses during the marriage, so it is accounted for in a divorce.

Reaching a Personal Injury Settlement

When money from a settlement is not specifically allocated for an injury or medical bills, the compensation may be regarded as community property. This often happens when parties settle out of court, without proper documentation. An attorney can ensure that even out-of-court PI settlements are handled properly.

The language of a PI settlement’s documentation goes a long way toward determining whether the money is communal or separate property. Upon agreeing to a settlement, an attorney should use very specific language in the documents to outline the purpose of the money. As detailed above, money intended for injuries and medical care is not to be divided with the spouse.

Getting Divorced With a Pending PI Case

Personal injury cases can take a long time, as can divorces. Individuals going through a divorce and a PI case simultaneously find themselves in a gray area regarding property division.

If a couple is separated before one spouse receives a personal injury settlement, that settlement is considered community property until the divorce is finalized.

Keeping PI Money Separate from Community Property

Those trying to protect personal injury settlements during a divorce should avoid some common pitfalls.

PI settlements can become communal property via the co-mingling of money. If an inheritance or settlement is to be considered separate property, it should not be placed into a joint bank account.

Making a large financial decision with one spouse’s settlement money, such as paying off a home’s mortgage, also transforms the asset into community property.

An attorney can offer case-specific advice to keep as much of the settlement as possible. Conversely, when one spouse feels that the other is preventing him or her from getting the money he or she deserves, it’s equally necessary to hire a competent attorney.