One of the more confusing and misunderstood assets which may be part of the marital property division in a divorce are personal injury settlement funds.
In essence, once a spouse has received funds in a settlement (or to satisfy a judgment) stemming from a personal injury claim, those funds may be community property, separate property, or a mix of both.
Keep in mind that under the Texas Family Code, all assets owned by either spouse are deemed to be community property unless and until the spouse claiming that asset as separate property provides clear and convincing evidence that it is separate. Therefore, absent any evidence to the contrary, all of those settlement funds will be considered community funds.
What do you need to prove to show that your personal injury settlement funds are your separate property? Funds which can be shown by clear and convincing evidence to be payment for one or more of the following damages are considered separate property:
- Mental Pain and Anguish
- Physical Pain and Suffering
- Disfigurement
- Loss of a Spouse’s Love and Companionship
Funds for settlement of the following sources of damages, however, have been explicitly held by Texas courts to be community property:
- Loss of earning capacity during marriage
- Medical expenses incurred during the marriage
- Damage to credit reputation
- Other expenses associated with the injury to the community estate
- Disability insurance payments and workers’ compensation benefits intended to replace earnings during the marriage
What if your settlement funds were paid in one lump sum, with various sources of damages all being paid out of one amount? This is a very common occurrence. When there is a lump sum settlement, it will almost certainly be characterized by a court as community property when it is intended to settle claims which include damages which are a mix of separate and community assets.
Therefore, if you are concerned that either you or your spouse may seek a divorce in the future, it is important to ensure that any settlement funds paid to you in a personal injury lawsuit are clearly segregated by the type of damages sought in your lawsuit. Your personal injury attorney can help you structure a settlement which accomplishes this.