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Are Personal Injury Settlements Community Property?

Obtaining a settlement for your personal injury could give you the financial relief you need to pay for medical debt, fix damaged property, and get back on your feet. If you and your spouse file for divorce, however, the law may entitle your spouse to a portion of your settlement – even if your spouse was not involved in the accident. In the eyes of California law, personal injury settlements obtained during the course of a marriage are community property. Thus, a settlement is a marital asset that may be subject to equitable division during a divorce. Contact an Orange County personal injury attorney to help you navigate the legal process in this trying time.

What Is Community Property in California?

In California, community property refers to all assets and debts accumulated during a marriage, other than gifts to a specific spouse or inheritance. Community property, or marital property, is any money, bonds, vehicles, artwork, businesses, and other assets the couple acquires while married. It also refers to any debts acquired. Separate property, on the other hand, is property each spouse obtained prior to the marriage or after a legal separation. It also refers to gifts and inheritances from third parties during the marriage.

A personal injury settlement will classify as community property if the recipient obtained the settlement during the marriage. A settlement is not a gift or inheritance. It is a type of income that automatically becomes marital property. Thus, the individual that actually suffered the damages will not have 100% ownership over the settlement. Instead, both spouses will technically own the settlement amount or jury award, as long as the couple was legally married at the time.

California Equitable Division Laws

During a divorce case in California, the courts follow equitable distribution laws for property division. The courts will divide all community properly equally, 50/50, in a divorce. All assets and debts (including settlements) either party acquired during the marriage will split in half during a divorce – one-half for each spouse. It does not matter which spouse earned more money, accumulated more debt, or won a personal injury lawsuit during the marriage. The courts treat all marital property as equally belonging to both spouses, and will split it equally during divorce.

If you received a personal injury settlement during your marriage, your spouse may have a right to a portion of your settlement during a divorce. However, your spouse will only have a right to certain parts of your settlement. The parts of a settlement that become community property are compensation for economic damages, such as medical bills, lost wages, and physical damage to property. However, pain and suffering damages will become the individual’s separate property, unless the plaintiff decided to comingle the funds with other marital assets.

If you wish to keep your pain and suffering settlement amount separate property, deposit it into a bank account that is separate from your joint account with your spouse. Do not use this money to purchase a vehicle or pay off a mortgage, as this will deem it a community asset. Speak to a lawyer for legal counsel about how to keep your settlement safe from equitable division during a divorce. An attorney can give you advice about property division, as well as help protect marital assets you believe should be yours alone.

Controlling Property Division

The California courts do offer an option to couples that want to control property division during a divorce. Couples can work out their own property separation agreement they both agree is fair. If your spouse does not want to take part of your injury settlement, he or she can sign over this right in your agreement. Most judges will sign off on a separation of property agreement instead of taking the matter to court. Using a mediator can help facilitate a compromise between you and your spouse, as long as you are both willing and open-minded. This can keep your settlement safe from equitable property division laws.