Bay Area Family Law Center Lawyer Blog
Accidents can happen at any time—house fires, car accidents, worker’s compensation claims, and injuries to life and limb, to name a few. A civil lawsuit or claim may continue for years after the injury. Sometimes civil claims arise while a couple is in the middle of a divorce. Which raises the question: How do California courts handle personal injury claims and insurance proceeds during a divorce?
If an ex-spouse has to file an insurance claim or personal injury lawsuit because of the mishap, it’s not easy to determine which spouse is entitled to a payout or where to turn to figure it out. If you have questions about how the court will divide your accident proceeds, here’s what you need to know about accidents, insurance, and divorce. For purposes of this article, an “Injured Spouse” and a “Personal Injury Award” includes injuries to property, such as houses and vehicles, as well as injuries to life and limb.
Automatic Temporary Restraining Orders Ensure that Upon Service of a Divorce Case, Neither Spouse Is Permitted to Remove or Cancel Their Spouse’s Insurance Policies.
Provision 3 of the Automatic Temporary Restraining Orders ( “ATROS”), located on page 2 of the Summons of a Petition for Dissolution, ensure that if an accident occurs while your divorce is pending, the insurance you had during your marriage will remain intact throughout the proceedings. Provision 3 of the ATROs prohibits cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage including life, health, automobile and disability, held for the benefit of the parties and their child or children for whom support may be ordered.. When one spouse serves the other with a summons in a legal separation or marital dissolution matter, ATROs become immediately effective.
Accidents Before Marriage Or After the Date of Separation
In general, property owned before or after marriage, or property acquired during marriage by gift, bequest, devise, or descent is the separate property of the spouse who acquired it. (Family Code ‘770-771).
If an accident occurs before a couple is married or after their judgment for divorce or legal separation, then courts in California will generally find that the proceeds from any legal settlement or insurance claim are the injured-spouse’s separate property. Because of this, ex-spouses must take care to update insurance policies after a divorce, ensuring that their coverage does not lapse due to their spouse cancelling a policy after a divorce judgment.
In California, Personal Injury awards are Separate Property when the injury arose either (1) after a legal separation decree or divorce judgment; (2) while the injured spouse is living separate and apart from the other spouse; or (3) during marriage wherein one spouse has caused either injury to property or the person of the other spouse. ( Family Code ‘781). However, if the non-injured spouse has paid expenses to cover the sustained injury(ies) from separate property or from the community property, the non-injured spouse is entitled to reimbursement for the expenses from the judgment for damages for personal injuries, or pursuant to an agreement for the settlement or compromise of a claim for those damages.
Accidents During the Marriage
If an accident occurs during the marital period, California Family Code § 780, § 781(a), and § 2603(b) determine what happens with accident proceeds.
California Family Code 780 states that if a personal injury cause of action arose during the marriage, then the non-injured spouse would be entitled to half of the money, unless an exception in Family Code § 781(a) or § 2603 applies.
Family Code § 781(a) states that if the accident that lead to the personal injury award occurred either (1) after a Judgment for Divorce or Legal Separation or (2) while the spouses are living separate from one another, then the award is the separate property of the injured-spouse. It is noteworthy that part (2) does not state that the date of separation is the relevant date of note, but that living separate from one another is the relevant criteria for an injury award to be a spouse’s separate property.
Despite the rules stated in Family Code § 780 and § 781(a), Family Code § 2603(b) allows the court to assign community estate personal injury damages to the respective parties in such proportions as the court determines to be just, but at least one-half of the damages must go to the injured party.
Read separately, these three statutes may seem contradictory. But taken together, these rules indicate that once spouses are living separate and apart or after date of a Judgment for Divorce or Legal Separation, only the spouse involved in the accident is entitled to receive accident proceeds. The non-injured spouse will only reimbursement for any community property or for the non-injured spouse’s separate property funds used to pay the injured-spouse’s expenses.
Even if a spouse receives the proceeds from a legal settlement or insurance claim after a divorce is final, the other spouse is entitled to an equitable share of those proceeds if the underlying accident occurred while the couple was still married. Family Code section § 2603 states that “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.”
What About Term Life Insurance
Unlike whole life insurance, term life insurance is generally accepted as having no value, since once its term has expired it is worthless. (Markey, Cal. Family Law, Practice and Procedure, § 24.45 [3] [e] p. 24-25; Hogoboom, Cal. Basic Practice Guide, Family Law, § 8:313.) When it comes to life insurance, there usually are named beneficiaries on the policy that indicate who receives a payout. For a whole life insurance policy, the death benefits and cash surrender value on date of separation are considered community property and subject to division. Several California courts have found a community interest in life insurance, even term insurance, on the death of the insured. In those cases, the courts have held that the proceeds of insurance, whether term or otherwise, then payable, were community property, to the extent that premiums thereon were paid from community funds. (See for example, Biltoft v. Wootten (1979) 96 Cal. App. 3d 58 [157 Cal. Rptr. 581]; Patillo v. Norris (1976) 65 Cal. App. 3d 209 [135 Cal. Rptr. 210].) Therefore, if a person dies and the term life insurance policy was last paid for by community property funds, the proceeds of the life insurance policy will be divided equally between the parties. (IRMO Gonazlez (1985) 168 Cal.App.3d 1021, 1025) In IRMO Lorenz (1983) 146 Cal.App.3d 464, 468, the Lorenz Court held that a term life insurance policy is worthless until the benefits become payable. Therefore, a term life insurance policy has no value if the insured spouse in alive.
The general takeaway of this article is that if an accident occurs during a marital period, court’s usually (but not always) will award the proceeds of an insurance policy and/or Judgment for Personal Injury equally between the parties. If the accident occurs after separation of the parties, courts will usually (but not always) award the proceeds of a term insurance policy and/or Judgment for Personal Injury to the injured party, unless the insurance policy has been paid for by community funds. Further, a designated beneficiary under the policy is also likely to receive under the policy. If the accident occurs after a Judgment for Dissolution of the parties, either the injured-spouse or the designated beneficiary will take the benefits under the policy.
If you need help deciding what happens with your accident proceeds during your divorce. We can help. Contact the Bay Area Family Law Center or call us at (925)258-2020 and let one of our family attorneys go over your options with you today.
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