Property division is often a contentious aspect of divorce proceedings. In Texas — one nine community property states — most assets acquired during the marriage are marital assets and belong to both spouses. Exceptions are gifts and/or inheritances received by one spouse. However, if these funds are commingled with martial property, they may no longer be regarded as separate property.
What happens with a personal injury settlement received by one spouse? This question does not have a clear answer. The details of the award and the manner in which the funds are handled will determine whether such a settlement will be deemed marital property and subject to division in a divorce. If the award was purely for pain and suffering, the full amount would be considered the separate property of the accident victim. However, if a portion of the award was for damage to community property or lost wages, that part will be shared, as those types of damages are typically classified as community property in a marriage.
When a personal injury settlement is received, it is important to deposit it into a separate bank account with no links to the marriage. If any part of the award is used to buy or finance something that is used by both spouses, the court may conclude that the funds have been commingled. If, for instance, some of the funds are used to finance a car or to pay toward a joint mortgage obligation, the settlement will likely become part of the marital assets to be shared.
When someone who is married receives a personal injury award, it may make sense to consult with a family law attorney before unintentionally commingling it with marital assets rather than ensuring it remains separate property. In cases in which such an award is already commingled by the time the couple files for divorce, it may be possible to resolve any property division issues through negotiation rather than leaving it for the court to decide. Alternative dispute resolution options such as divorce mediation may lead to each party receiving his or her fair share without having to litigate the issues in court.
Source: divorce.lovetoknow.com, “Is a Personal Injury Settlement Community Property?“, Jodee Redmond, Accessed on Sept. 2, 2016