How Are Personal Injury Settlements Handled In A New Jersey Divorce?

Upon termination of a marriage by divorce, New Jersey Family Courts are often faced with the difficult task of determination of the appropriate division of the couple’s assets, ranging anywhere from liquid assets to real and personal property. Today’s blog will address the treatment of personal injury awards and settlements for lawsuits or claims commenced during the marriage. Following please find a detailed legal analysis prepared by Molly Turpin, Esq., an associate attorney and another rising star at the Law Offices of Edward R. Weinstein.

Specifically this blog shall discuss how divorce and family law attorneys treat the equitable distribution of the money upon a couple’s divorce. Personal injury awards and settlements often include damages for pain and suffering, lost wages, loss of future earning capacity loss of consortium (i.e., the loss of the benefits of a family relationship due to the injuries), medical expenses and damages to property.

Although there are considerable differences in the way states treat property acquired by spouses while married, New Jersey lawyers follow what is known as the “Analytical Approach.”


New Jersey’s Analytical Approach

New Jersey has employed the Analytical Approach method which entails the evaluation of the purposes of the settlement or award and the specific elements of damages. For example, if an individual has lost wages or medical expenses (paid out of joint assets), then the court considers those to be “marital awards”, which are subject to division between the husband and wife in a divorce.

Other types of damages incurred by the individual are treated as separate or non-marital property of the injured spouse. Therefore, these monies are not subject to be divided between the parties upon a New Jersey divorce. Examples include the loss of future earning capacity, pain and suffering, and loss of consortium. In Amato v. Amato 180 N.J. Super. 210 (App. Div. 1981), the court noted that:

“nothing is more personal than the entirely subjective sensations of agonizing pain, mental anguish, embarrassment because of scarring or disfigurement, and outrage attending severe bodily injury… None of these, including the frustrations of diminution or loss of normal bodily functions or movements, can be sensed or need they be borne, by anyone but the injured spouse. Why, then, should the law seeking to be equitable, coin these factors into money to even partially benefit the uninjured and estranged spouse?”

However, while a settlement or award based upon an injured party’s loss of consortium is not divisible in a divorce, both spouses may make this claim and the award to each remains separate property. This separate action is known as a per quod (i.e., loss of consortium or services) derivative action in connection with any lawsuit that might be brought.

But what happens when a personal injury case is settled while the parties are still married, the settlement includes proceeds for pain and suffering for one spouse yet another part of the settlement is loss of consortium to the other spouse? In Ryan v. Ryan, 238 N.J. Super.21 (Ch. Div. 1993), the Court was faced with this exact issue – whether insurance proceeds paid for personal injuries and loss of consortium, which had already been received, commingled and disbursed remains subject to equitable distribution. The husband’s net settlement was $182,946.96 which was payable to defendant for pain and suffering and to the Plaintiff for her loss of consortium. Here the funds were allocated between the two claims and the two spouses. The settlement check was endorsed by the parties and deposited into two separate accounts in the name of the Wife alone as custodian for each of the parties’ two children. Thereafter, the Wife withdrew portions of the funds for various purposes. The Ryan court was now faced with an issue involving an asset which could no longer be identified and categorized with their valued being determined and distributed. Ultimately, the court noted that commingling of separate funds for pain and suffering and loss of consortium with marital property converted those funds into marital property.

Damage to property may be either community or separate, depending on the nature of the property damaged. For example, if a vehicle was damaged, but that vehicle was owned by the spouse before the marriage. In that event, upon divorce, the settlement or award for same would not be distributable as the damaged property was never a marital asset.

In some cases, where there is egregious conduct by a defendant, a court may award punitive damages to punish the defendant. There is little authority regarding treatment of punitive damages, however, New Jersey has followed a trend which was triggered by a 1996 Alaska Supreme Court case involving punitive damages in the notorious Exxon Valdez oil spill action held that punitive damage awards should mirror treatment of the underlying award or settlement, (i.e., if 50% of the underlying award is deemed marital property, subject to division, 50% of the punitive damages should be treated as marital property).

It should be further noted that for purposes of eligibility for equitable distribution in a divorce proceeding, an interest in property need not be presently available for distribution to be the subject of a judicial decree. N.J.S.A. 2A:3-23

This highly complex area of the law requires an attorney whose practice is solely devoted to divorce law in the state of New Jersey. I invite you to contact my law firm if you have any questions or comments.  Thank you.