Is Insurance Accident Money Before a Marriage Considered Communal Property?

by Wayne Thomas
Accident money accruing before a marriage is generally not considered community property.

Accident money accruing before a marriage is generally not considered community property.

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Compensation for injuries and damages associated with automobile or other types of accidents can take significant time to process. When payment finally arrives, it is not uncommon for people affected by the accident to have moved on with their lives. In states that recognize community property, the act of getting married does not automatically give your spouse an ownership right in insurance proceeds, either in divorce or at death. However, how you treat the property during the marriage, intentionally or inadvertently, can override this general rule.

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Overview of Community Property

The law in community property states, which include California and Texas, assume that both spouses contribute equally to the marriage. Upon divorce, property deemed to be community property would be divided equally between the spouses. If the parties are married when one spouse passes away, the surviving spouse generally is entitled to one half of the estate, even if a will specifies a smaller amount. Whether property is considered community property is largely a matter of timing. Typically, all property acquired during the marriage -- regardless of who holds the title -- is considered community property, unless it was a direct gift or inheritance. Property acquired before marriage, on the other hand, is generally considered separate property and is owned by the spouse who acquired it.

Accidents Occurring Before Marriage

When it comes to insurance compensation for an accident, damage awards are considered property that is subject to community property rules. Compensation might be for damage to a car or for personal injuries sustained in the accident. In either case, if the accident occurred before the marriage, it would not be considered community property. This is true even when you receive the payments after you become married.

Commingling

Although marriage does not automatically convert separate property to community property, certain actions on your part can cause the assets to be reclassified. One way is by commingling. Commingling involves the mixing of separate and community to the point that the source of the property cannot be reasonably ascertained. For example, assume that before you were married, your automobile was demolished in an accident that was not your fault. While you were single, the insurance company makes a lump sum payment, but instead of fixing your car, you decide to keep the money and deposit it into a joint bank account with your fiance. Then you marry and use the account to pay household bills. In such a case of commingling the insurance money, it could be impossible to differentiate your separate property, unless you itemized each transaction.

Acquiring New Property

Another way of changing separate property insurance proceeds into community property is to use the accident insurance proceeds to purchase a replacement vehicle. If the insurance payment is not enough to cover the total cost of a new car, and you add community property to it, it can be difficult to convince a judge that the total value of the new car is not also community property. Some states, including Louisiana, hold that assets acquired with a mix of community and separate property are community property unless the value of the community property used was inconsequential to the total cost.