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Who “Owns” Money Damages Recovered by One Spouse During the Marriage?

Who “Owns” Money Damages Recovered by One Spouse During the Marriage?

Money damages received by a spouse as compensation for a personal injury that occurred during the marriage are owned by both parties. The money is marital property. As with most things that come up in the dissolution of a marriage, however, there are additional details to be considered.

While California Family Code § 780 provides that damages received for an injury that occurred during marriage are marital property, Section 781 states that if the injury occurred after entry of a final divorce decree or after separation of the parties, the money damages  are the separate property of the injured party. It is important to recognize, however, that whether a couple is considered legally separated can be complicated. If there is a formal separation approved by the court, there is no question. If not, the court considers various factors, including living arrangements, comingling of funds, and other indications of whether the couple otherwise functioned as if they were married.

If a couple dissolves a marriage during which one of the parties received money damages, California Family Code § 2603 provides for the allocation of those funds to the spouse who received them. But that is assuming the funds can be distinguished from other marital funds and have not been comingled. If, for example, the money was set aside in an investment account in the injured party’s name, that money, although marital property during the marriage, would be allocated to the injured spouse at the time of dissolution.

If the money damages were comingled with other marital funds, then they may be considered marital property at the time of dissolution. Where comingling is concerned, money damages are treated essentially the same as property owned by a spouse before the marriage. If the owning spouse allows the money or property to be comingled with other marital property, it is treated as part of the marital estate at the time of dissolution.

Once again, though, there are more details. Section 2603 also authorizes the court to allocate some of those funds to the non-injured spouse “after taking into account the economic condition and needs of each party, the time that has elapsed since the recovery[,] . . . and all other facts of the case.” If the court makes such an allocation, however, no more than one-half of the funds may be so allocated.

Division of the marital estate at the time a marriage is dissolved can be highly contentious and complicated. While state law provides the framework for issues such as money damages for personal injury, it also gives the courts broad discretion to achieve a fair outcome for both parties. If you are facing a divorce proceeding, especially one that involves a complicated estate, you should consult with an experienced California lawyer. The attorneys at the Law Offices of Judy L. Burger are well-versed in difficult divorce proceedings. Call today to see how we can help you: (415) 293-8314.