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The Impact of Divorce on Your Client’s Personal-Injury Settlement
by Taylor Smith

For Texas family law attorneys, it is common to have a client with a settlement recovery from a personal-injury lawsuit. While this recovery is meant to cover the plaintiff’s related medical bills and other needs after a disabling injury, that money can be considered a marital asset during divorce.

Texas is a community property state, so each spouse is considered to have a one-half interest in the assets acquired during the marriage. When a spouse recovers damages in a personal-injury suit, that recovery can be characterized as either community or separate property depending on the type of recovery received.

1. Damages for Personal-Injury are Separate Property

A spouse’s body is regarded as separate property. Thus, damages recovered by a spouse for personal-injury, regardless of whether it is recovered before or during marriage, are characterized as that spouse’s separate property. See Texas Family Code § 3.001(3). Past and future physical pain and suffering, mental anguish, disfigurement and loss of consortium are types of damages that compensate for bodily injury and are characterized as separate property.

However, if the settlement is not carefully structured, these damages might be distributed as community property during a divorce. When a spouse enters into a settlement agreement in a personal-injury suit, that agreement should specifically allocate award amounts for each type of injury sustained, including the specific dollar amounts awarded for pain and suffering. If the settlement agreement does not specify those amounts for each injury type, the community-property presumption will apply to the entire recovery.

2. Damages to Community or Separate Estate

Personal-injury damages that compensate for economic damages are characterized based on which estate suffered the economic loss. For example, property recovered for loss of earning capacity during marriage is characterized as community property. This includes personal-injury, workers compensation, and disability awards that are compensation for lost wages.

Medical expenses recovered by a spouse in a personal-injury suit are characterized based on the estate that paid the expenses. If the community estate was burdened with the medical expenses, then the expenses recovered would be characterized as community property, and vice versa.

3. Co-Mingling Personal-Injury Settlements

Attorneys should consider whether funds from personal-injury settlements have become co-mingled with marital assets by their clients. A personal-injury settlement for pain and suffering may be considered community property during a divorce action if the funds become co-mingled with other marital assets. If a client wants to be sure that his or her personal-injury settlement is not included in a community property calculation, he or she should deposit the funds in a separate account. It is within the court’s discretion to determine whether funds have become co-mingled with marital assets upon final dissolution, thus, attorneys should make their clients aware of the consequences of co-mingling personal-injury settlements.

To learn more about the impact a divorce can have on personal-injury settlements, contact Taylor Smith.