Distribution of Personal Injury and Workers’ Compensation Awards During Divorce

The question that frequently arises when people are going through a divorce is whether  my ex-spouse entitled to part of my personal injury and workers’ compensation award in the divorce?

A large part of the process in any divorce is the division of the money and property the couple has accumulated, also known as the marital property. When most people think of division of marital property, they think of things like bank accounts, retirement accounts, real estate and personal property.

Personal injury and workers’ compensation awards, however, may also be divided upon divorce.  Personal injury awards and settlements often include damages for pain and suffering, lost wages, loss of future earning capacity loss of consortium (i.e., the loss of the benefits of a family relationship due to the injuries), medical expenses and damages to property.

The question then becomes: is my personal injury or workers’ compensation award considered marital property? When answering that question, it is first important to look at whether the cause of action (i.e. the accident, injury, or medical problem) which resulted in the personal injury or workman’s compensation award occurred during the marriage. If the cause of action accrued during the marriage, it can be characterized as “marital property”. In New Jersey, all martial property is subject to division at divorce.

On the other hand, if the cause of action which led to the personal injury or workers’ compensation award occurred before or after the marriage, the award would generally be considered separate or non-marital property and is generally the sole property of the injured spouse.

What happens when a personal injury or worker’s compensation award is considered marital property?  The Court next has to decide how to divide the award. New Jersey courts follow what is called the “analytic approach”.

New Jersey’s Analytical Approach

The Analytic approach specifically evaluates the purposes of the settlement or award and the specific elements of damages and divides assets based upon what the award was intended to replace. When examining a worker’s compensation or personal injury award, the Court will look at what exactly the award was meant to compensate for.

In some instances, a personal injury or workers’ compensation award is meant to replace the financial or economic loss the underlying injury caused, i.e. an individual’s lost wages or medical expenses incurred and paid for during the marriage.

In other instances, however, the awards are non-economic and are intended to compensate for the effects of the injury. When a person is seriously injured, the injury can cause a permanent disability and inability to work. The injury can also cause loss of enjoyment of life, pain and suffering, and loss of satisfaction in life. These are non-economic injuries.

An injury can take away the enjoyment and pleasure in living daily lives: waking up without pain; drinking a cup of coffee without someone’s help; dressing a child in mismatched clothes that she insists on wearing, rather than have that child dress you; walking to the bus stop or subway in the brisk air, rather than being wheeled to a lift van; accomplishing a job well done at work, rather than being limited to a make-work project for the disabled; deciding what to make for dinner and preparing it. In addition to causing  physical pain and suffering,  injuries can frequently cause mental anguish, anxiety and often shame at being transposed from an able-bodied working person to an individual who is dependent on others.

In Amato v. Amato 180 N.J. Super. 210 (App. Div. 1981), the court noted that:

“nothing is more personal than the entirely subjective sensations of agonizing pain, mental anguish, embarrassment because of scarring or disfigurement, and outrage attending severe bodily injury… None of these, including the frustrations of diminution or loss of normal bodily functions or movements, can be sensed or need they be borne, by anyone but the injured spouse. Why, then, should the law seeking to be equitable, coin these factors into money to even partially benefit the uninjured and estranged spouse?”

The court in Amato v. Amato, 180 N.J. Super. 210 (1981)  thus held that such awards will be divided into two parts: 1) awards to the injured spouse for his or her lost wages and medical expenses incurred, and 2) awards compensating for issues such as disfigurement, pain and suffering and disability.  The Court then determined that the first award (i.e. an award for lost wages and/or medical expenses) is classified as marital property whereas the second award (i.e. an award for disfigurement, disability and/or paint and suffering) is classified as separate or non-marital property.

Using the Amato v. Amato framework, courts will need to determine whether the award is for economic or non-economic damages. Sometimes, the award itself will outline its purpose, designating exactly what each portion of funds is meant to compensate for.  In other instances, the court will need to turn to the relevant case law and statutes to determine the purpose of the award. The judge will review the facts surrounding the injury, the effect the injury will have on the injured person’s life moving forward, and whether there were lost wages or medical expenses incurred by the injured person, during the marriage, which are now being recouped and make a determination based upon the overall picture.

Division of Settlement Proceeds Received During the Marriage

What happens when a personal injury case, where the award includes monies for pain and suffering for the injured spouse and monies for loss of consortium for the remaining spouse, is settled while the parties are still married? In Ryan v. Ryan, 238 N.J. Super.21 (Ch. Div. 1993), a New Jersey court addressed this exact issue.

Specifically, in that Ryan v. Ryan, the husband’s net settlement was $182,946.96 which was allocated to defendant husband for his pain and suffering and to the plaintiff wife for her loss of consortium. The settlement check was endorsed by the parties and deposited into two separate accounts in the name of the Wife alone as custodian for each of the parties’ two children. Thereafter, the Wife withdrew portions of the funds for various purposes.  By the time of the divorce, the asset could no longer be identified and categorized. The question during divorce is whether these funds were subject to equitable distribution.  Ultimately, the court noted that commingling of separate funds for pain and suffering and loss of consortium with marital property converted those funds into marital property.

Equitable Distribution

Once the Court determines how much, if any, of a personal injury or workers’ compensation award is marital property, the Court will attempt to equitably divide the marital portion of the personal injury or worker’s compensation award as part of the general equitable distribution of assets. Equitable does not necessarily mean equal or a 50/50 split, instead it means fair. The court attempts to divide property in a way that is most fair to both parties.

In determining how to best equitably distribute the marital property, the Court looks at the following factors under N.J.S.A. 2A:34-23.1:

  • the length of the marriage
  • each spouse’s physical health, emotional health, and age
  • any income or property either spouse brought into the marriage
  • the standard of living the couple established during the marriage
  • any written prenuptial or post-nuptial agreements covering property division
  • each spouse’s overall economic circumstances
  • each spouse’s income and earning capacity (ability to earn income based on education, training, experience, length of any absence from the job market, and custodial responsibilities for the couple’s children)
  • the extent to which either spouse may have delayed pursuing career goals during the marriage
  • any time and expense required for a spouse to acquire the education or training necessary to achieve a standard of living comparable to the marital standard
  • any contributions either spouse made to the education or earning power of the other spouse
  • any contribution by either spouse to acquiring, preserving, improving, or wasting marital property, including contributions as a homemaker
  • the tax consequences of a proposed distribution
  • the present value of all property
  • the need of a parent with physical custody of a child to own or occupy the marital residence or use household effects
  • each spouse’s debts and liabilities
  • any present or future need for a medical or educational trust for either spouse or a child, and
  • any other relevant factors.

N.J.S.A. 2A:34-23.1.

Equitable distribution of personal injury and worker’s compensation awards, as well as equitable distribution in general, can be a complicated issue to address on your own. If you or your spouse have received a personal injury or workers’ compensation award and you are considering divorce, call the Fuggi Law Firm at 732-240-9095 for a free consultation, or visit us at our website www.fuggilaw.com