Are Personal Injury Awards Considered Community Property?
If you received a personal injury award during your marriage, you probably think that your ex will get part of it in the divorce. In divorce, most of your property is considered community property, and therefore subject to being divided equitably. But, this isn’t necessarily the case when it comes to personal injury awards.
Generally all income and property acquired during marriage are community property. For example, if both you and your spouse own a house together, that house is considered community property in divorce.
Community property is divided equitably in divorce. So, you might think that an award for personal injury occurring during the marriage would automatically be classified as community property. But that is not the case.
Though personal injury awards are called “Compensatory Damages”, the concept of making an award for pain and suffering in a personal injury case is to replace what was taken from you, not to give you something new. Compensation for pain and suffering is not the acquisition of a new asset, but rather a replacement of what was lost. So, there is no new acquisition. Your body was your separate property before the marriage, and an award for injury to that body remains separate property.
For example, if you received a personal injury award to cover medical expenses for an accident you were in, that award would be considered separate property and not community property.
But income earned during the marriage is community property, and, if there is a portion of a personal injury award that is given to replace lost income, then that component of the award is community property.
The income lost because of a personal injury did not exist before the injury. It is income that would have been earned during the marriage. So, it is community property.
Also, an award for damage to, or destruction of, community personal property (such as a car damaged in a wreck) is community property. The award is intended to replace or repair a tangible item that was community property before the damage. So that portion of an award in a personal injury claim is community property.
What you should do if you received a separate property personal injury award
The spouse receiving the separate property award for personal injury has to be careful with what they do with those funds. If the funds are deposited into a community bank account or spent to improve community property, then those funds will be deemed to have been “commingled” with community property and, thereby, converted to community property.
If the award is for a small amount, and not of major concern to the couple, this is not a major issue to worry about.
But if the award is substantial, the couple should obtain legal advice on how best to proceed. It is always better to seek advice before you take action, rather than after you take it.