Many lawsuit settlements involve substantial sums of money that compensate victims for a life-changing injury that somebody else caused. In many cases, victims must cope with extra medical bills, lost wages and other unexpected costs that the injury can incur. In short, the victim needs the money he or she wins. Nonetheless, if you decide to divorce your spouse, his or her attorney could see your settlement as a substantial asset. So what can you do?
Property division laws by state
If you decide to divorce your spouse, a family court will normally decide how to divide your assets. The process behind this division generally varies between states, and the courts will divide your assets using either a mechanical or analytic approach.
With the mechanical approach, a court will divide assets based on the state law's definition of separate and marital property. Separate property generally includes anything each spouse owned before the marriage, as well as any property, gifts or inheritance that one person received during the marriage. Marital property refers to anything the couple received jointly after the marriage.
In these states, a court will normally rule that a personal injury award falls under the marital property definition.
Alternatively, the analytic approach looks at the purpose of the award. In these states, a personal injury award will often become separate property because the money is to help improve one spouse's quality of life. Conversely, if the couple had to pay the medical expenses that one spouse incurred, the award will become marital property because both people suffered a financial loss.
The rules vary considerably between states. For example, in California, any personal injury award from a lawsuit filed during the marriage becomes community (shared) property. Some states will even use a mixture of these approaches, which means that every case can conclude differently.
Ways to protect your settlement
It's important to seek advice from a personal injury attorney as soon as you decide to file a lawsuit. The approach your lawyer takes can influence what would happen to the settlement if you later decide to divorce. While you may not expect anything to happen to your marriage, it pays to consider every possibility from the outset. Indeed, if you already have a difficult marriage, it is wise to involve a family lawyer at the same time.
You can ask your attorney to allocate the damages to differentiate between personal and community property. You can apply this definition to 100 percent of the settlement, or you may decide to break the settlement down. For example, you may choose to allocate 60 percent as personal property and 40 percent as community property because you both incurred expenses and had to take time off work.
It's also important to treat the settlement in a way that matches the definition you want a court to use. For personal property, deposit the proceeds into your own bank account, and take steps not to mix up your assets. Again, you can take this approach with all or part of the settlement.
How your actions influence a court's decision
Of course, a personal injury settlement is unlikely to sit in a bank and gather dust. You would probably expect somebody with an injury to use the money to recover or cope with the damage, but this isn't always the case. For example, you may decide to use a personal injury settlement to pay off your mortgage or buy a new vehicle. By doing this, you can alter the asset's definition.
If you use your settlement to pay off debts or buy new assets, the personal and marital property definitions will normally apply to what you buy, and not where the money came from. As such, a large personal settlement could become a marital asset, even if you then have to keep paying medical bills. Again, it's worth talking to your attorney to consider ways you can stop funds becoming marital property in these situations.
A personal injury settlement can help you recover from a serious accident, but you must consider what could happen if your marital circumstances change. Talk to your personal injury attorney and family lawyer for more advice, and make sure your settlement doesn't become part of a bitter divorce battle.