Getting divorced is nearly always an unpleasant ordeal. In addition to its emotional toll, those involved in a divorce commonly face significant financial challenges. High on the list of people’s concerns is the division of property. Who will get the car? How will we split the 401(k)? And, if you’ve been compensated in a personal injury case, how will we divide the personal injury settlement?
In this article, we will explain how New Jersey’s laws handle personal injury settlements in a divorce. We will also consider how a looming divorce should factor into your decision making if you are thinking about pursuing a personal injury case.
How Property Is Divided in a New Jersey Divorce
An important step in any divorce is dividing the “marital property.” “Marital property” is any property you and your spouse acquired between the date when you were married and the date when one of you filed for divorce. By “property,” we don’t just mean the big things, like houses and cars. Property means all assets and debts. This can include things like bank accounts, furniture, credit card debt, and much more. Property that is not acquired during your marriage is known as “separate property.” This will include anything you acquired before the date you were married or after the date you or your spouse filed for divorce.
New Jersey divorce law says separate property is generally not divided. So, your separate property will generally remain yours in a divorce. Marital property, on the other hand, is divided in what is called an “equitable division.” An “equitable division” means the court will divide the marital property fairly. This could mean dividing the property equally, or 50-50, but it doesn’t have to. The court decides what is a fair division of the marital property according to these factors listed in § 2A:34-23.1:
Criteria For Equitable Division of Marital Property
a. The length of your marriage or civil union
b. The age and physical and emotional health of you and your spouse
c. The income or property brought to the marriage or civil union by you versus by your spouse
d. Your standard of living during your marriage or civil union
e. Any written agreement you and your spouse made before or during your marriage or civil union concerning how to divide the marital property
f. Your and your spouse’s economic circumstances when the division of property becomes effective
g. Your and your spouse’s respective income and earning capacity
h. The contribution you or your spouse made to the education, training or earning power of the other
i. The contribution you or your spouse made to acquiring and maintaining the marital property
j. The tax consequences of the proposed distribution to you and your spouse
k. The present value of the property
l. The need of whoever will have custody of the kids to live in the marital residence and use the marital household property
m. The debts and liabilities of you and your spouse
n. The need for creation, now or in the future, of a trust fund to secure reasonably foreseeable medical or educational costs for a spouse, partner in a civil union couple, or children
o. The extent to which either of you deferred achieving career goals
p. Any other factors which the court may deem relevant
In general, the court will have final say over how the marital property is divided between you and your spouse or civil union partner, unless you are both able to reach an agreement.
Personal Injury Settlement: Marital, Separate, or a Little Bit of Both?
How a personal injury settlement will be classified and divided in a divorce will depend on some specifics about the settlement itself. The three main factors at play are:
- When you were injured or compensated
- What you were compensated for
- Where you put the money
Factor #1: When You Were Injured or Compensated
The first question you should ask when dividing property in a divorce is when the property was acquired. Remember that anything you acquired before marriage or after you or your spouse filed for divorce is generally considered your separate property. And anything acquired between those dates is generally considered marital property and will need to be divided. So, timing is important. Here are some general guidelines for how when you were either injured or received your personal injury settlement can affect whether your settlement will be separate property for you to keep or marital property for you to divide:
When You Were Injured or Compensated
Separate Property or Marital Property?
Before your date of marriage
Probably your separate property (unless marital funds used to pay accident-related expenses)
After your date of marriage but before you or your spouse filed for divorce
Probably a mixture of separate and marital property. It will depend on factors 2 and 3.
After you or your spouse filed for divorce
Probably a mixture of separate and marital property. It will depend on factors 2 and 3.
Factor #2: What You Were Compensated For
Most personal injury settlements are actually a mixture of separate and marital property. This is because some things you might be compensated for in a personal injury settlement are classified as separate property, while others are considered marital property. This rule was established in a real-life case called Landwehr v. Landwehr.
When Mr. Landwehr suffered injuries in a car accident, he filed a personal injury case, which his attorney settled for $26,000. A year later, Mrs. Landwehr filed for divorce against him. The court, when dividing their property, acknowledged that Mrs. Landwehr was entitled to a portion of Mr. Landwehr’s personal injury settlement, but they limited her to the portions of the settlement compensating them for lost earnings and medical expenses. The rest of the compensation for pain and suffering was determined to be Mr. Landwehr’s personal and separate property. The idea here was that the lost earnings and medical expenses affected both of them, while the pain and suffering was only his.
Here is a guide to the different types of compensation and how it might be classified under current divorce law:
Type of Compensation
Separate Property or Marital Property?
Pain and suffering
Loss of future wage earning
Lost wages and medical expenses
If lost wages from between date of marriage and date filed for divorce, then marital property.
If lost wages from before date of marriage or after date filed for divorce, then probably separate property.
If compensating for a marital asset, like a car purchased during the marriage, then probably marital property.
If compensating for a separate asset, like a car purchased before the date of marriage, then probably separate property.
Punitive damages (those meant to punish the party responsible for your accident)
Marital property divided according to a special percentage formula.
Factor #3: Where You Put the Money
Where you put the money awarded in a personal injury settlement can also affect how it is classified. This is because of a concept known as “commingling.” Commingling is when you take money that is potentially considered your separate property and you mix it with money that is considered marital property, such as by depositing the money in a joint bank account belonging to both you and your spouse.
The problem with mixing the funds is that it becomes difficult to prove that some of the money is separate property and some of it is marital property because when it’s mixed together, it all looks the same. For this reason, if you mix your personal injury settlement money with money that is considered marital property, the settlement money might also be classified as marital property, even if it was separate property before you mixed it in with marital money.
How Should Divorce Affect Your Decision to Pursue a Personal Injury Case?
After learning that a personal injury settlement might be divided between two spouses during a divorce in New Jersey, those of you who are about to get divorced or are in the process of getting divorced might wonder whether it is worth it to pursue a personal injury case. The simple answer is that divorce should not stop you from pursuing your personal injury claim.
While it is true that any money you are awarded in your personal injury case might be marital property divided between you and your spouse, you should keep in mind that even splitting a personal injury settlement is better than not being compensated at all for your injuries. If you have been injured, it is likely that you have outstanding bills and other accident-related expenses that need to be paid. So, the money from the personal injury claim is necessary to resolve debts that may be your personal debts or may be classified as marital debts. These debts don’t go away simply because you get divorced.
Another important reason why you should still pursue your personal injury claim is that, as previously noted, not all compensation you can recover will qualify as marital property. Compensation for things like pain and suffering and your loss of future wage earning capability will most likely be your sole and separate property.
Closing a Loophole: What if You Wait Until After Your Divorce Is Finalized?
Loopholes can be very convenient. So, it doesn’t surprise us to learn that a client may be wondering how to get a personal injury settlement in a way that makes it divorce-proof, meaning in a way where a spouse won’t be able to claim half in a divorce. In the interest of transparency, we will actually explain this loophole. But we will also explain why using it is probably not a good idea.
Here’s the loophole in a nutshell: What if you waited until after your divorce was finalized to file your personal injury case? Let’s consider a hypothetical. Aaron is married to Cindy. Their marriage has been on the rocks for a few months and they plan to get a divorce. Before either of them files for divorce, Aaron is injured in a car accident by a drunk driver. He does some research and realizes that if he files a personal injury case and wins, the money he is awarded could be divided between him and his spouse in their divorce. But Aaron has an idea. He decides he will wait to start his personal injury case until after his divorce has been finalized. That way, any money he is awarded will be after the date of the divorce filing, which in his mind makes it separate property. Also, the divorce will be final, so in his view, his spouse will not have any reason to claim half of his settlement.
Now, while Aaron’s idea might sound appealing, let’s consider why this won’t necessarily work. Firstly, Cindy may have a claim to some of the money Aaron is awarded in his personal injury case, even if he starts it after they file for divorce. For instance, any compensation for lost wages and medical expenses from before they file for divorce would be considered marital property. The same goes for compensation for property damage to the car Aaron was driving if that car was indeed marital property. So, Aaron is wrong. His potential personal injury settlement doesn’t suddenly become separate property just because he files his case after one of them files for divorce. Cindy probably does have a legal claim to some, if not all of what Aaron might win in a personal injury case.
Second, Cindy may have a few legal options to get any personal injury compensation Aaron is awarded even after the divorce is finalized. One way is to have the court make an order in the final divorce judgment saying that Cindy is entitled to a percentage of any compensation Aaron might receive in a future personal injury case relating to his accident. This is what happened in the case of Di Tolvo v. Di Tolvo. The couple’s final divorce judgment said Mrs. Di Tolvo was entitled to 20% of any money Mr. Di Tolvo might be awarded in a personal injury action based on the car accident he suffered while they were still married.
Another option for Cindy would be to take Aaron back to court after he is awarded compensation and complain to the judge that Aaron acted unfairly by hiding the personal injury case from her and the court. In that situation, a judge may yet award Cindy a portion of the settlement. This is exactly what Mr. Pandya tried to do after his ex-wife, Mrs. Shah won a $400,000 settlement from her employer after their divorce had been finalized. However, in this case, Pandya v. Shah, Mr. Pandya was not successful.
Crucially, the court pointed out that Mrs. Shah did not start her case until after they were divorced and did not know she had a claim until after the divorce was finalized. Now, while Mr. Pandya wasn’t able to get a share of the compensation in this case, it’s unclear how a court would rule if Mrs. Shah actually knew about the lawsuit during the marriage and just waited until after the divorce to file it. It’s possible a court in that situation would award Mr. Pandya or someone like him a portion of the settlement because Mrs. Shah or someone like her would have been dishonest in not disclosing it as a possible marital asset.
The bottom line is that this particular loophole is dishonest and can lead to legal trouble down the line. You should discuss this and all your other options with an attorney who will have a better idea of the facts of your case and the likely outcomes.
Frequently Asked Questions
Yes. One way is if it’s all considered separate property. Another way is if you settle your divorce, with the divorce settlement awarding the personal injury settlement money to you.
The best step you can take to protect your settlement money is to keep it in its own separate account, away from money that is considered marital property. If it is “commingled,” or mixed, with marital money, it could be considered marital property that needs to be divided between you and your soon-to-be ex-spouse.
Yes. It is possible for one spouse to ask a court to consider a personal injury settlement as the other party’s income instead of claiming it as a marital asset. A spouse may do this when they want to argue for more alimony, also known as spousal support.
Who Should You Contact?
If you have been involved in an accident, don’t let divorce stand between you and recovering the compensation you deserve. The knowledgeable and experienced personal injury attorneys at Rosenblum Law are here to help you successfully pursue your personal injury claim. E-mail or call 888-815-3649 for a free consultation.