What Happens to Lawsuit Money in a Divorce?

By Teo Spengler

Yours, mine or ours. If one spouse wins money from a personal injury lawsuit, its disposition in a divorce depends on the state in which the couple lives. Some states look to the reason for the award and divide it between the spouses on that basis; other states focus on the timing of the lawsuit.

Marital or Separate Property

Most assets a couple acquires during a marriage are subject to court division in a divorce and in some states, courts can also divide property acquired before marriage. Assets can be assigned to one spouse as his separate property or to both spouses as marital property that must be divided according to state laws. The two primary systems of property division are community property, which divides all marital property equally, and equitable division, which divides all property fairly but not necessarily equally.

Personal Injury Awards

Determining whether property is separate or marital can be tricky when one spouse has won a monetary award for damages in a personal injury lawsuit. Personal injury cases include actions for medical malpractice, negligence, slip and fall incidents, and automobile accidents. The settlement or award can reimburse the spouse for different types of damages such as past and future medical bills, pain and suffering, and economic loss.

Divorce is never easy, but we can help. Learn More

Analytical Approach

In some states, including most community property states, divorce courts separate a malpractice award into its different components to determine whether it solely belongs to the spouse who wins it or to the couple. In those states, any portion of the award that constitutes lost income is considered marital property since the income it replaces would have been marital property. Likewise, the portion of the award that pays medical bills belongs to the couple. However, the portion of the award that compensates for loss of the spouse's well-being, like pain and suffering or physical disability, is the separate property of that spouse.

Mechanistic Approach

A minority of states look to the timing of the litigation and apply a mechanistic approach. If the spouse receives personal injury compensation during the marriage, any damage award or settlement is marital property, even that portion of it that compensates for a spouse's loss of well-being. A few equitable distribution states permit all property acquired by either spouse before the divorce, including property obtained before the marriage or by inheritance or gift, to be divided equitably between both spouses. For these particular states that also apply the mechanistic approach, inquiry into what is separate and what is marital property is not necessary.

Divorce is never easy, but we can help. Learn More
South Carolina Divorce Court Ruling on a Spouse Trying to Take Everything I Worked For
 

References

Resources

Related articles

The Equitable Distribution Statute in North Carolina

Divorce requires couples to divide their assets, and divorce law is dictated by the state in which you live. States fall into two categories: community property states, which tend to divide assets 50-50, and common-law states, which divide assets according to principles of "equitable distribution." Among common-law states, however, not all the equitable distribution statutes are the same. The statutes that govern property division in a divorce in North Carolina can be found in the North Carolina General Statutes 50-20, 21.

Alienation of Affection Divorce Laws

Alienation-of-affection laws reflect the outdated concept that if a spouse strays, a third party must have lured her into it and a court can therefore hold that person accountable. Most states have abolished alienation-of-affection laws. Only South Dakota, New Mexico, Hawaii, Mississippi, Utah, North Carolina, New Hampshire and Illinois allowed such lawsuits as of the 2011.

Mississippi Divorce Laws on Equitable Distribution

Mississippi divorce law changed significantly in 1994, when the Supreme Court handed down two important decisions in the cases of Ferguson v. Ferguson and Hemsley v. Hemsley. These precedents updated the state’s treatment of marital property in divorce. Mississippi is an equitable distribution state, so property is not necessarily divided 50/50 between spouses.

Get Divorced Online

Related articles

Financial Gifts in a Divorce

In many cases, if you personally receive money as a gift, it will not be affected by a divorce. Generally, gifts made ...

Marital Property Laws in Ohio

Couples who decide to divorce often wonder how their property will be split, or how much say they have in the matter. ...

Can a Wife's Financial Misconduct Be Considered in a Divorce?

Your divorce court will issue a divorce decree that details the terms of your divorce, including how property is to be ...

How to Divide Money in a Divorce

Disputes over money can often lead to the breakup of a marriage, and when they occur, these disputes commonly persist ...

Browse by category
Ready to Begin? GET STARTED