What Happens to a Personal Injury Settlement in a New York Divorce?
How property is divided is among the most complex aspects of a New York divorce. Assets such as property, retirement savings, investments, and others acquired during the marriage constitute marital property and fall under the rule of equitable distribution. However, how do you handle money that was gained through a personal injury lawsuit? In New York, a personal injury settlement is an exception to the rule that assets acquired during the marriage are subject to equitable distribution.
Personal injury compensation is considered separate property
According to New York Domestic Relations Law, a personal injury award is considered separate property. Thus, an injury award received by one party due to personal injury will belong to the injured party regardless of whether the divorce has already occurred.
In other words, this rule applies even when the accident and personal injury lawsuit occurred during the marriage. For example, let’s assume that a man suffers injury during a car accident while he is married. As a result, he receives $500,000 in a settlement with the at-fault driver. The fact that the award was received during the marriage does not make it marital property.
This situation is different from the general rule that all money acquired during the marriage constitutes marital property.
What about lost wages?
A personal injury settlement can cover multiple types of injuries, such as pain and suffering, medical costs, and lost earnings.
You might think that any replacement for income earned during the marriage could be considered marital property. However, the New York law concerning the personal injury exception is quite broad. For instance, the New York Appellate Court ruled in Howe v. Howe on whether various parts of a personal injury award should be treated differently. The court stated that the statute’s personal injury exception included both economic and non-economic parts of the award.
Commingling assets can cause problems
Although a personal injury settlement starts as separate property, what you do with the money afterward can change things significantly. For example, if the injured party deposits their settlement money in a joint account or the couple’s main account, it can be very difficult to determine which money is marital and which money is nonmarital. Further, the settlement proceeds could be used to buy other property within the marriage.
Tracing separate funds therefore becomes very relevant. Financial documents such as bank statements, settlement papers, check stubs, and closing documents could be used for this purpose.
What if the settlement has not been paid yet
A pending personal injury claim can complicate divorce. For example, a spouse could have suffered an injury during the marriage but could only get their settlement after the divorce process starts or even after it’s finalized.
It is not the timing of the payment that makes the asset separate or marital property, but rather the type of asset itself.
Talk to a Rockland County, NY Divorce Lawyer Today
The Law Office of Robert S. Sunshine represents the interests of Rockland County residents during their divorce. Call our Rockland County family lawyers today to schedule an appointment, and we can begin addressing your questions right away.
