Is a Personal Injury Settlement Community Property?

Jodee Redmond
Piggy Bank, House and Gavel

People who are contemplating or going through a divorce may be wondering, "Is a personal injury settlement community property?" The answer depends on what the money is for and if the funds were kept separate from other marital assets or not.

Community Property Basics

In the U.S., there are nine community property states:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • New Mexico
  • Nevada
  • Texas
  • Washington
  • Wisconsin

In a community property state, each spouse is considered to have a one-half interest in the assets acquired during the marriage. Money and property acquired before the date of the marriage are not included in community property calculations. Not all assets are treated as community property when the marriage breaks down. An item received as a gift by one of the spouses is not considered community property. Money or property received as an inheritance is also not included in community property calculations, as long as these items are kept separate from marital assets.

If one person receives a cash sum as an inheritance and the funds are deposited into a joint bank account held by both spouses, it can be argued that since the funds became co-mingled with marital assets that they should be considered community property.

Is a Personal Injury Settlement Community Property?

If the money received as a personal injury settlement is deemed compensation for pain and suffering, it will not be considered community property. These funds are the property of the recipient only, since it was that individual who experienced the discomfort following the accident.

In a case where a portion of the settlement is received as compensation for physical damage to property or for lost wages, this part will be considered community property, since vehicles and income would be classified in this way.

A personal injury settlement for pain and suffering may be considered community property during a divorce action if the funds become co-mingled with other marital assets. A person who wants to be sure that his or her personal injury settlement is not included in a community property calculation should deposit the funds in a separate account. If the money from a personal injury settlement is used to buy something that the couple uses together, that item may be considered community property if they later divorce.

Using the funds received from a personal injury settlement to pay off a mortgage or buy a vehicle may mean that the settlement is considered a community asset. Seeking legal advice at the time the funds are paid out can provide the recipient with options for keeping these funds from being considered marital property.

Getting Professional Advice

In order to find out the answer to the question, "Is a personal injury settlement community property?" in a specific case, consult an experienced divorce attorney. The decision about whether funds that have become co-mingled with marital assets and should be considered community property is made at the discretion of the judge hearing the divorce case. The attorney can offer advice about whether the couple would be better off attempting to resolve this issue themselves rather than going to court to get it resolved.

Is a Personal Injury Settlement Community Property?