Let’s say you are going through a divorce and you need to know how to characterize Workers’ Compensation Benefits or personal injury benefits. Where do you start?
First, it depends when the cause of action occurred. Generally, personal injury damages are separate property when the cause of action arises before marriage or after separation, regardless of when the damages are received. When the cause of action arose during the marriage and before separation, the proceeds are community property. Otherwise, they are the separate property of the injured spouse. Family Code Section 781(a).
A lump-sum workers’ compensation permanent disability award that an injured spouse receives before separation is that spouse’s separate property to the extent that the award is compensation for the diminished earning capacity the injured spouse will suffer after the date of separation. It is community property only to the extent that the award is intended to compensate for the injured spouse’s reduced earnings during marriage and before separation, or for injury related expenses paid with community funds. Marriage of Ruiz (2011) 194 CA4th 348.
If a court determines that a lump-sum workers’ compensation award is partially separate and partially community property, it may use any method that fairly apportions the asset or its value between community and separate property interests. In other words, the court may make an equitable apportionment.
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