Is an accident settlement considered community property in the event of a divorce?

Whether an accident settlement is considered community property is going to depend on what the settlement is for. Community property is subject to division by the courts in the event of a divorce. When the settlement is for pain and suffering, you will not be entitled to any portion of the settlement since the pain and suffering was a personal injury suffered by your spouse. However, if the settlement is for the property damage to a car or for lost wages, the money will likely be considered community property.

Community Property and Accident Settlements

There are nine “community property” states within the United States; the others use “equitable distribution.” When you live in a community property state, all assets that were acquired during the marriage are split 50-50, no matter who bought them or what financial contribution each party made. However, there are some limited exceptions to this 50-50 split, and one of these exceptions is damages for pain and suffering.

Damages for pain and suffering belong solely to the person who actually endured the pain. If the damages are for lost wages, however, then the damages are split. This is because it is assumed that any lost wages would have been considered marital property, had they been earned. The same is true of damages for a vehicle: since the vehicle would have belonged to the marital unit, the compensation for the vehicle does as well.

There may be exceptions, however, if your spouse “co-mingled” his injury settlement money with marital assets. For example, if he received money for community property and added it to accounts you shared or used it to pay off the mortgage on a family home the two of you already owned, then he may be viewed as having turned that property into a community asset. This will depend on the discretion of the judge arranging your property settlement.

Getting Help – Accident Settlements & Community Property

For help understanding what you can expect in a divorce, and to ensure you get your fair share of marital assets, you should speak with a divorce lawyer.

Case Studies: Division of Accident Settlements in Divorce

Case Study 1: Pain and Suffering Settlement

In a divorce case, the spouse received a significant settlement for pain and suffering resulting from an accident. Since pain and suffering damages are personal to the injured spouse, the settlement is not considered community property. As a result, the other spouse does not have a claim to any portion of the settlement.

Insurance considerations may include the need for personal injury protection (PIP) coverage or medical expense coverage in auto insurance policies to provide financial support in case of future accidents or injuries.

Case Study 2: Property Damage and Lost Wages Settlement

In another divorce case, the settlement received by one spouse was for property damage to a vehicle and lost wages due to the accident. In this scenario, the settlement is likely to be considered community property. The property damage portion of the settlement relates to a marital asset, the vehicle, and the lost wages are viewed as potential marital income.

As a result, the settlement amount will be subject to division between the spouses. Insurance considerations may involve reviewing auto insurance policies for coverage limits related to property damage and exploring additional coverage options to protect against potential income loss.

Case Study 3: Co-Mingled Settlement Funds

In a divorce where the injured spouse received an accident settlement, the funds were co-mingled with marital assets. The injured spouse used a portion of the settlement to pay off the mortgage on the family home, which was jointly owned by both spouses. In this case, the co-mingling of settlement funds with marital assets may lead the court to consider the settlement as a contribution to the community property.

The judge may exercise discretion in determining the division of assets based on the specific circumstances. Insurance considerations may include reviewing homeowners’ insurance policies to ensure adequate coverage for the family home.