Personal Injury and Workers’ Compensation Proceeds in a Divorce

I. PROPERTY SETTLEMENT.
Nationwide, there are two approaches taken by courts when determining what portion, if any, of a personal injury award should be considered in a divorce proceeding.  First, there is the “mechanical” approach, which holds that all amounts from a personal injury award are to be included in the marital estate.  The other approach is the “analytical” approach, which provides that only those portions of a personal injury award which represent compensation for past wages, medical expenses, and other items which diminish the marital estate are included within the marital estate.

In Pardae v. Pardae, 258 Neb 101, 602 NW2d 657 (1999), the Nebraska Supreme Court adopted the analytical approach.  The Nebraska Supreme Court pointed out that in determining what assets constitute a marital estate and how property should be divided, Nebraska, by statute, is an equitable property distribution jurisdiction.  The Court specifically noted,

In equity, there is rarely one tidy answer that fits every size and type of problem that courts are called upon to resolve.  It is precisely for this reason that a principled approach to this issue should be consistent with the basic policy rule that the marital estate should include only property created by the marital partnership. Id. at 108.

The Court defined the analytical approach as that approach where courts analyze the nature and underlying reasons for the compensation.  It further stated the core of the analytical approach is its recognition that the classification of the award depends upon the nature of the underlying loss.

It was the opinion of the Nebraska Supreme Court the analytical approach was much more consistent with the basic rule that the marital estate should include only property created by the marital partnership, and the Court adopted that approach.  The Court reasoned compensation for purely personal losses is not in any sense a product of marital efforts.  Id. at 109.  The Court therefore held compensation for an injury that a spouse has or will receive for pain, suffering, disfigurement, disability or loss of post-divorce earning capacity should not be equitably included in the marital estate.  Id. On the other hand, compensation for past wages, medical expenses, and other items that compensate for the diminution of the marital estate should be equitably included in the marital estate as they properly replace losses of property created by the marital partnership.  Id at 110.

The burden of proof to show the property is non-marital is on the person making the claim.  Therefore, in those cases where the party making the claim that personal injury proceeds are non-marital property must prove all or a portion of the personal injury compensation is for purely personal loss or loss of future earning capacity.  The Court stated there is a presumption proceeds from personal injury or workers’ compensation settlements or awards are marital property.

In order to determine what portions of a workers’ compensation award are marital property or separate property, a court must consider the following factors: “(1) the purpose of the award, such as whether it was made for lost earnings, loss of future earning capacity, or some other purpose; (2) the time period of any diminished earning potential or disability; (3) the nature and date of the underlying injury; and (4) the terms of the award.”  Gibson-Voss v. Voss, 4 Neb App 236, 242 NW2d 74 (1995).

II. CHILD SUPPORT.
In Maricle v. Maricle, 221 Neb 552 (1985), with regard to the award of child support, the Nebraska Supreme Court affirmed the trial court’s award of child support relying on a prior similar case which held the husband, although not capable of earning a wage, did have earning capacity within the meaning of Neb Rev Stat § 42-364(3).  The Court noted that Nebraska statute does not limit child support payments only to be paid from wages.  Specifically, the Court stated § 42-364(3) states in part, “in determining the amount of child support to be paid by a parent, the Court shall consider the earning capacity of each parent.”  Id. at 555.  The Court further noted:

It has been the law of this state for many years that in determining the amount of child support to be awarded, the status, character, and situation of the parties and attendant circumstances must be considered.  The financial position of the husband as well as the estimated cost of support of the children must be taken into account.

With regard to the earning capacity of each parent, the Court held ”earning capacity” refers to the overall capability of a parent to make child support based on the overall situation of the parent making such payments and that overall situation includes monies available to the parent from all sources, including investment income, even when that investment income is derived from personal injury proceeds.

III. CONCLUSION.
In a nutshell, Nebraska is an equitable distribution jurisdiction, and therefore equity allows the court to consider various factors when determining what portions of any workers’ compensation or personal injury award are to be considered marital property or to be taken into consideration in awarding child support.  Therefore, there will be no hard and fast rule.  However, it can be safely said that any part of an award which is attributable to pain and suffering and/or disfigurement will certainly be the sole property of the injured party.  With regard to a property settlement, any amount for future earnings will also be considered the sole property of the injured party.  However, when considering child support, any amounts attributed to future lost earnings will be taken into account when determining the amount of child support to be paid.