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How to Protect your Personal Injury Settlement from your Divorce

What is the difference between Community Property and Separate Property?

It is important to know the difference between community property and separate property because a spouse’s recovery in a personal injury case will be treated just like any other in the event of a divorce.

Texas is a community property state. Eight other states including Arizona and Nevada are also community property states. In these states, marital property is either community property or separate property.

Generally speaking, separate property includes property owned by one spouse prior to the marriage, a property that one spouse acquires through gift, descent or devise during the marriage, and personal injury awards (except for awards for lost earning capacity).

The underlying principle of community property is that property acquired during the marriage is owned by both spouses. Community property includes property that either spouse earns during the marriage, items that were bought with money that either spouse earns during the marriage.

Also, note that it does not matter if the title to a piece of property is only in one spouse’s name. For example, if one spouse buys a car with money that he earned during the marriage the car will still be community property even if the title to the car was only in one spouse’s name.

Why does the Categorization of Community Property or Separate Property Matter?

Community property is generally divided between the two spouses on divorce. The court does not have to divide the property equally. Instead, the court must divide the property in a way that is “just and right.â€

However, each spouse keeps their separate property at divorce. This means that it is very important to define whether a personal injury award or settlement is community or separate property. If your personal injury settlement is labeled as community property your spouse will be entitled to part of the settlement or award upon divorce.

Can my Spouse Access my Personal Injury Award or Settlement?

Determining how a personal injury award will be divided is a fact-intensive analysis. If the personal injury settlement or award is community property your spouse will be entitled to their share upon divorce.

One key consideration is what the spouse was receiving compensation for. There are many different types of damages including economic and non-economic damages. Damages can include pain and suffering, medical expenses, and lost wages. Certain types of damages will likely be considered separate property of the spouse that received the personal injury settlement or award.

Below is a list of damages that have been considered separate property:

  • Pain and suffering (as well as mental pain and anguish)
  • Disfigurement
  • Loss of spouse’s love and companionship (though if you’re divorcing you doubtfully have a claim for this)

In contrast, some damages have been considered community property. Below is a list of damages that have been considered community property:

  • Damages designed to compensate one spouse for damages to community property
  • Loss of earning capacity during the marriage

Also, note that disability payments and workers compensation payments are often considered community property especially if the recovery is designed to compensate the spouse for lost earning capacity.

In Texas, there is a presumption that property owned by one spouse at death or divorce is community property unless it can be proven by clear and convincing evidence that the property is separate property. When the spouse that received a personal injury settlement or award wants the award to be treated as separate property that spouse has the burden of proof to show that the funds are in fact separate property.

Note that it does not matter if the spouses are separated prior to the personal injury settlement. If the jury verdict or settlement is recovered before the divorce is final then some of the award may be considered community property.

Tips for Protecting your Personal Injury Award or Settlement:

First, you should make sure that you do not co-mingle any award that you receive with community property. This is because separate property can become community property when the separate property is mixed with community property.

For example, if a spouse inherits a sum of money from a relative and then deposits the money into a joint bank account it is possible that this money will now be considered community property. When you receive a check from the defendant in your personal injury case you should deposit it into a separate bank account. Do not put any of the money into the account that you share with your spouse.

Next, make sure that you alert your attorney to the fact that you are involved (or may become involved) in a divorce proceeding. Your attorney can give you case-specific tips in order to ensure that you keep as much of your personal injury settlement as possible in the event that you divorce. Specifically, your attorney can provide you with advice help you keep the property from being considered marital property.

Lastly, when you reach a settlement you should ask your personal injury attorney to place specific language in the settlement documents that state which damages are community property and which damages are separate property. As mentioned before, in Texas there is a presumption that property obtained during the marriage is community property. Allowing your attorney to place specific language in the settlement documents will help you to overcome the community property presumption. This method does not automatically mean that your spouse will not be entitled to a share of the damages that are labeled “separate property†but it may carry some weight in a divorce proceeding.

Having your attorney distinguish between what damages are community property and what damages are separate property is important because there is a rule in Texas that states that lump sum recoveries are community property (see Kyles v. Kyles 832 S.W.2d 194, Tex. App.—Beaumont 1992).

If you go through a divorce after receiving your personal injury settlement and you are worried about the possibility of your spouse having access to your personal injury settlement you can contact a personal injury lawyer have a consultation with a lawyer to discuss your options.