Although people know they must split marital property with their soon-to-be ex-spouses, many are still surprised to learn that may include money they receive from personal injury lawsuits for injuries and losses they sustained in auto accidents. Here's how this can happen and what you can do to keep most or all of your settlement money.
Timing is Key
The date the accident was settled will determine whether you'll be required to share the money with your ex-spouse. If you live in a community property state like California, Washington, or Nevada, any asset or liability acquired during the marriage becomes the property and responsibility of both parties, regardless of who obtained it. For instance, if you got a credit card in your name, your spouse would be equally liable for paying off the debt, even though he or she may not be an authorized user of the account.
So if you settle your case while your marriage was still in effect, the court will typically award your spouse some of the money, even though you were the one hurt in the accident. The motivation for this is your spouse likely also suffered losses as a result of your accident and, thus, must be compensated for them. For example, in community property states, your spouse has an equal stake in the family vehicle. If it was totaled in the crash, your ex would be entitled to his or her portion of the vehicle's value.
On the other hand, if you settled your accident case before you were married or after your divorce was finalized, the money you receive is considered separate property your ex-spouse is not entitled to. Be aware, though, there are exceptions to this rule.
Depositing your settlement check into a joint checking account will convert it into marital property as does using marital money to improve upon your asset. If you deposit your settlement money into an IRA and then regularly make additional deposits into the account using comingled funds, your spouse may be entitled to some of the money since you used marital resources to improve it.
Even if your case settles after your marriage ends, your ex-spouse could sue you for a portion of the settlement money and win by proving he or she also sustained losses and damages as a result of the accident. If your spouse cut back on his or her work hours to take care of you while you recovered, for instance, he or she could use that to ask for reimbursement for those lost wages.
Protecting Your Settlement
There are a couple of things you can do to protect your accident settlement, depending on when your case was settled. If it was settled before marriage, draw up a prenuptial agreement stipulating the money is separate property and then avoid doing anything to convert your settlement into marital property.
If your case is settled while you're married, make sure the settlement agreement clearly stipulates how the money is being allocated. Some types of damages (e.g. pain and suffering) are considered separate property because they only affect the injured party. Therefore, your spouse will not be given any money from that category. You're awarded $5,000 for property damage to the vehicle and $10,000 for pain and suffering, for example. Your ex would only be awarded part of the money for the property damage since he or she is a co-owner of the car that was smashed up in the crash.
The last thing you can do is make sure the settlement accounts for your ex's damages as well. For instance, your spouse can claim loss of consortium against the liable party for the pain and suffering and other non-economic damages caused to him or her because of your accident. Your ex may put less pressure on you to share your settlement if he or she is awarded money from the defendant as well.
It's important to notify your accident attorney as soon as possible if you're considering divorce. Your lawyer can help you structure your settlement so you lose as little money as possible to your ex. For more information, contact a lawyer, such as Katz Nowinski PC.