If you’ve received money because of a personal injury – perhaps from a car accident or medical negligence – you might be wondering what happens to that money if you go through a divorce. There is no simple answer, but this article aims to answer some of the most commonly asked questions.
Are Personal Injury Damages Matrimonial Assets?
Personal injury awards are not automatically excluded from the matrimonial pot. Any funds received by a party to the marriage as part of a personal injury settlement should be disclosed as part of the exchange of full and frank financial disclosure.
The family court will look at the whole picture when deciding how to resolve the financial claims, including what each person needs and what money or resources are available. The Family Court has wide discretion to consider all financial resources available to both parties. The starting point in a long marriage would be an equal division of the matrimonial resources (including capital and pension assets). While damages awards may be considered non-matrimonial assets, that does not mean they are protected. The case law is clear that these awards are not immune from the discretion of the family, albeit that the source and rational for the funds should not be ignored.
Where the award has been invested in a joint asset (most commonly, the family home) it is likely to be viewed as having been ‘mingled’ and therefore take on the identity of a matrimonial asset irrespective of its source.
What does that mean in practice?
The financial needs of the parties (and particularly the children) trumps the origin of the resource. Even where damages are deemed non-matrimonial, the court may still “invade” them to meet the reasonable needs of the other spouse or children (and the needs of the children will be given first consideration).
The more information and detail that can be included in your disclosure about how the award was structured and/or calculated can help to demonstrate why it meets a particular need and therefore support the case that this should be ‘ringfenced’ for that purpose. For that reason, ‘general damages’ are likely to be most vulnerable. ‘Specific damages’ for, for example, care and assistance, accommodation or medical expenses may be better capable of protecting. Awards for loss of earnings during the marriage are likely to be considered matrimonial, in the same way that income earned or generated during the marriage would be.
Protective Measures
There are some ways that you can mitigate the risk of a personal injury award being subject to division on divorce and it is certainly worth taking advice from a specialist lawyer if you are concerned about this at the point of negotiating your settlement.
- Personal Injury Trusts can help ringfence funds, though this is not fail safe and the assets within the trust may still be considered a resource by the court.
- Nuptial agreements (pre- or post-marriage) can outline how such awards should be treated on divorce. A nuptial agreement will be given significant weight by the family court on divorce provided it is entered into properly and provides for a fair outcome, meeting the needs of both parties.
- Structured settlements or periodical payments may offer more protection than generic lump sums, as they limit the capital available for division. An award that is carefully and specifically categorised in a schedule of loss and damage provides crucial information to a family court and may help to persuade a judge that it should be retained by the recipient to meet the intended purpose.
What Should You Do?
If you’ve received personal injury compensation and are going through a divorce – or thinking about it – it’s important to get advice from a family lawyer. Every case is different, and the court will look at your individual circumstances. Early advice about how to manage your receipt and application of the award will be crucial in protecting it.
