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Is a Personal Injury Settlement Community or Separate Property in a California Divorce?

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In this article, we discuss personal injury settlements and whether the money received may be community or separate property. We thank Orange County divorce attorneys, Farzad Family Law for their contribution to this article. Nothing in this article is legal advice. It is not intended to apply to your specific situation. Please ensure you retain an experienced family law attorney to provide you with the advice you need on this topic and to represent you. Also, California law can change and this article is not updated with the current law. That is another reason you should always consult with an attorney before you make any decision on your specific matter.

 If spouses are happily married and one of them is going through a personal injury case where he or she expects to obtain a monetary settlement, the last thing either spouse may think about is whether the money is separate or community property. That is because most spouses in such a situation are not considering divorce.

 If you buy a house during the marriage with only community property funds and no separate property funds are ever expended into that house, that house is likely equally divided. It does not matter that one spouse worked and one was a homemaker. There are however exceptions to this equal division rule in many situations and one such exception deals with personal injury awards.

 This article is only about Family Code 2603. We do not discuss Family Code 781. Family Code 781 deals with a different area which is beyond the scope of this article.

 California Family Code 2603 states:

 “(a) “Community estate personal injury damages” as used in this section means all money or other property received or to be received by a person in satisfaction of a judgment for damages for the person’s personal injuries or pursuant to an agreement for the settlement or compromise of a claim for the damages, if the cause of action for the damages arose during the marriage but is not separate property as described in Section 781, unless the money or other property has been commingled with other assets of the community estate.

(b) Community estate personal injury damages shall be assigned to the party who suffered the injuries unless the court, after taking into account the economic condition and needs of each party, the time that has elapsed since the recovery of the damages or the accrual of the cause of action, and all other facts of the case, determines that the interests of justice require another disposition. In such a case, the community estate personal injury damages shall be assigned to the respective parties in such proportions as the court determines to be just, except that at least one-half of the damages shall be assigned to the party who suffered the injuries.”

 So, what does the statute tell you? It states such personal injury damages that fall into the definition of “community estate personal injury damages” go to the spouse who was injured but with limited exceptions.

 That brings us to the “interest of justice” language. This is the term that can create potential arguments over the personal injury damages and how it should be divided. The law is written in such a way to allow the facts of individual situations to control, versus having a hard and fast rule.

 The next issue is the commingling of the personal injury damages. What happens when the personal injury damages are commingled? Typically, there is a “tracing” that occurs and a forensic accountant is used to figure out if the personal injury proceeds can be separately identified despite the commingling. The more commingling for a longer period of time, the more challenging that tracing may become.

 The purpose of this article was to give you a general overview of Family Code 2603. If you are contemplating divorce in Orange County, California or are going through one, contact Farzad Family Law for assistance.

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